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Investment Insight Wealth Management, LLC in Long Island, NY specializes in a variety of financial services, to help their clients get the best service possible. If you want to provide a future for your child, or a child in your family, but you’re worried about what the gifts could mean for the child in the future, a UTMA account could be the answer.
The Uniform Transfers to Minors Act, also known as UTMA, allows minors to receive gifts including money, real estate, fine art, patents, and royalties, without the assistance of a guardian or trustee. With UTMA, the person who gives the gift, or another appointed custodian, manages the minors account until he or she is of age (typically 18 or 21.) The UTMA also protects the minor from tax implications of the gifts, up to a specified value.
Once the account is setup, anyone can contribute to it. The custodian may choose a variety of different investments to help the funds grow, including mutual funds, stocks, and bonds. Only the custodian named on the account may request withdrawal funds from the account, and the withdrawals may only be used to benefit the child.
This can be an excellent way to help a minor child build tax-free savings. However, the assets in the account will count as part of the taxable estate for the custodian, until the minor is old enough to take possession of the account.
This means the custodian must include this income on their tax return, or file a return on behalf of the child. Typically, because the child’s income is much smaller, they are taxed at a lower rate, however, if there are investments above a certain threshold amount, the child will be taxed at a higher rate.
If the child is seeking financial aid for college, the assets in the account may reduce the amount of assistance the child is eligible to receive, or may even prevent the child from receiving financial support for college.