What Is The California Uniform Transfers to Minors Act CUTMA?

How the California Uniform Transfers to Minors Act Can Secure Your Child’s Future

The California Uniform Transfers to Minors Act, or “CUTMA,” contained in California Probate Code sections 3900 through 3925, is an alternative estate planning tool available in California to transfer any type of property to a minor. The property is assigned to an adult custodian entrusted with the management of the property for the minor’s benefit until the minor reaches 18 years of age unless the age for transfer is delayed up to age 25, or up to age 21 for lifetime gifts.

For instance, if Mom wants to donate $10,000 to Daughter, Mom can give that money to Aunt to manage and use for Daughter’s benefit until she turns 18. If Daughter is 13 at the time, then Aunt may use the money for various reasons for her benefit for the next five years. When Daughter turns 18, Aunt is required to transfer ownership of any remaining money to Daughter.

What is a CUTMA Transfer?

A CUTMA transfer can be established during your lifetime or after your passing by creating the transfer in your will, trust, or beneficiary designation. The distinct advantages of using CUTMA are the ease of creation, no need for court involvement, and no requirement for fiduciary accounting. It can be used to avoid the costs and delays of a court-supervised guardianship of the estate, which also requires the property to be given to the minor at the age of 18. A CUTMA transfer also qualifies for the annual gift tax exclusion amount.

What are the advantages of using a CUTMA?

• Ease of creation:
  CUTMA transfers can be established through a lifetime gift, will, trust, or beneficiary designation, making it a relatively simple process to set up.
• No court involvement:
  Unlike some other estate planning tools, CUTMA transfers do not require court involvement, which can save time and money.
• No requirement for fiduciary accounting:
  CUTMA transfers do not require a fiduciary to provide an accounting of the property, which can reduce administrative costs.
• Avoids the cost and delays of court-supervised guardianship of the estate:
  CUTMA transfers can be used to avoid the cost and delays associated with court-supervised guardianship of the estate.
• Annual gift tax exclusion amount:
  A CUTMA transfer qualifies for the annual gift tax exclusion amount, which can help to reduce the overall tax burden on the estate.
• Flexibility to choose the custodian:
  The transferor has the freedom to choose the custodian they want to manage the assets on behalf of the minor.
• No need for court approval on the spending of the money:
  The custodian is free to spend the money without any court approval as long as it is used for the benefit of the minor.

A CUTMA transfer is not always the best option. 

There can only be a single beneficiary and custodian, however, you can elect a successor custodian if you choose. If you want each of your children to have property, you must establish separate accounts for each child. You also cannot provide specific instructions to the designated custodian such as how to use the funds or what investments to make. The custodian is free to spend the money without any court approval as long as it is used for the benefit of the minor. If the minor child’s unearned income gets too high, he or she may incur a tax liability. Finally, a CUTMA account is treated as an asset for the minor for financial aid purposes, which may impact future requests for financial aid.

The disadvantages of using one include:

• Single beneficiary and custodian:
  CUTMA transfers only allow for a single beneficiary and custodian, so if an individual wants each of their children to have property, they must establish separate accounts for each child. However, a successor custodian may be elected.
• Limited instructions to custodian:
  Specific instructions cannot be provided to the designated custodian such as how to use the funds or what investments to make.
• Tax liability for the minor:
  If the minor child’s unearned income gets too high, he or she may incur a tax liability.
• Asset for financial aid:
  A CUTMA account is treated as an asset for the minor for financial aid purposes, which may impact future requests for financial aid.
• Limited control over the assets:
  The transferor loses control over the assets once they are transferred to the custodian and the custodian has discretion to use the assets as they see fit.
• No instructions to the custodian:
  CUTMA does not provide any instructions to the custodian on how to manage the assets, which can lead to confusion and disputes.
• No protection against mismanagement:
  CUTMA does not provide any protection against mismanagement of the assets by the custodian.
• No flexibility in the distribution of assets:
  The assets in the CUTMA account must be transferred to the minor at the age of 18 unless the age for transfer is delayed up to age 25, or up to age 21 for lifetime gifts.

Alternatives to the California Uniform Transfers to Minors Act:

There are many alternatives to a CUTMA transfer. A typical alternative, with the most flexibility, is to create a trust for the child’s benefit. Although a CUTMA transfer is a simple tool to benefit a minor in California, everyone’s estate planning situation is different and requires an independent analysis of the specific facts and circumstances involved.

There are several alternatives to the California Uniform Transfers to Minors Act (CUTMA) that can be used for transferring assets to minors, including:

• Trusts:
  Setting up a trust for the benefit of the minor allows for greater flexibility, as it allows for multiple beneficiaries, specific instructions for the custodian, and the ability to set conditions for the distribution of the assets.
• Guardianship:
  Court-supervised guardianship of the estate can be used to provide for the care and management of assets for a minor.
• UTMA account:
  UTMA (Uniform Transfers to Minors Act) accounts are similar to CUTMA accounts, but they can be established in other states, and they may have different age limits and restrictions.
• Special Needs Trust:
  Special needs trusts are designed to provide for the specific needs of beneficiaries with disabilities without disqualifying them from government benefits.
• Life insurance policy:
  Life insurance policies can be a valuable tool for providing financial security for a minor in the event of the death of the policyholder.
• Saving account or CD:
  A savings account or certificate of deposit in the minor’s name can be a good way to save money for the future.
• 529 plan:
  A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education expenses.

Every estate planning situation is unique and requires an independent analysis of the specific facts and circumstances involved. At Naimish & Lewis, APC, our estate planning team can advise you on estate planning, trusts and derivatives administration, and probate-related matters such as probate administration, conservatorship, and guardianship. Our attorneys will work with you to understand your specific goals and objectives and to develop a plan that is tailored to your specific needs.

If you have any questions or concerns regarding your estate planning options, please do not hesitate to contact us to schedule an initial consultation with one of our attorneys. Our team has a wealth of experience and knowledge in estate planning and will work with you to ensure that your assets are protected and your loved ones are provided for in the manner that you desire.