MILTON BERRY SCOTT
Attorney at Law
Walnut Creek, California

CALIFORNIA UNIFORM TRANSFERS TO MINORS ACT

California, like most states, has provision for gifts to minors, people under 18 years of age. While a gift can be made outright to a minor, this would normally trigger a court appointed guardianship. This is far too cumbersome and costly for the amounts involved. A trust could also be used but this requires a trustee, keeping of detailed records, and the filing of an annual trust tax return. Again, it's cumbersome and costly.

An alternative is to make a gift under the provisions of the California law known as the California Uniform Transfers to Minors Act. Under this act, a custodian manages the assets, which can be stock, mutual funds, real estate, cash or any other asset, on behalf of the minor, and can invest the assets as the custodian feels is proper. The minor is considered the owner of the assets and the minor's social security number is used. All taxable income is taxed to the minor annually and may give rise to the "kiddie's tax" if the minor is under 14 years of age.

The custodian can use the funds for the minor's benefit and when the minor attains age 18, turns the assets over to the minor. If the minor dies, the assets are part of the minor's estate and if he dies prior to age 18, the assets pass to the nearest relative by intestate succession.

If specified when the gift is made, the assets can be held until age 21. Assets are registered in the name of the custodian, such as "John Doe, Custodian for Frank Doe until age 21, under C.U.T.M.A." If the custodian dies, a new custodian takes over the management. Unfortunately, only one person at a time may serve as custodian.

An individual can also leave assets by will, living trust, beneficiary designation, and other methods to someone under age 25, such as a grandchild, under the provisions of this act. To do so, the will, trust, or beneficiary designation must provide it is held by the designated custodian under C.U.T.M.A. until the beneficiary attains age 25.

If the custodian is the donor of the gift and dies while acting as custodian, the full value of the assets will be taxed in the donor's estate. To avoid the estate tax, the donor and custodian should be different people. For example, John Doe wants to make a gift to his grandson, who is eight years of age. If John Doe is the custodian and dies while custodian, the gift or gifts will be taxed in his estate. It would be better for John Doe to name his daughter, his grandson's mother, as custodian. If he then dies, none of the assets are taxable in his estate.