What are UGMA and UTMA Accounts?

April 5, 2019 by Michael O'Brien

What are UTMA and UGMA accounts? Are there better alternatives? Read on to learn more about these accounts, their drawbacks, and better alternatives.

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Michael O'Brien

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NOTE: The IRS has announced its gift and estate tax limits for 2016. The lifetime gift and estate tax exclusion amount is $5,450,000, up from $5,430,000 in 2015. This means a married couple can pass as much as $10,900,000 during life or at death with proper planning. The annual gift tax exclusion amount remains at $14,000. Now on to the main topic of our eAlert. Antoine de Saint-Exupéry said: “As for the future, your task is not to foresee it, but to enable it.” A comprehensive estate plan enables you to assure that your legacy is passed on to those you care about and provide guidance for your loved ones upon your death or disability. One year ago this past month, Robin Williams committed suicide. While it appears that this tragedy may have been caused by his lengthy battle with depression exacerbated by a diagnosis of Parkinson’s disease and Lewy body dementia, Mr. Williams had the forethought to plan for his family using various trusts as part of a comprehensive estate plan. A comprehensive estate plan should include, at a minimum, the following documents: 1) revocable living trust, 2) pour-over will, 3) durable power of attorney for property, 4) advance health care directive, and 5) HIPAA preauthorization form. A revocable living trust provides for management of assets in the event of incapacity, distribution of the estate after death, avoidance of probate, and for some individuals, minimization of estate tax at the death of the surviving spouse. A pour-over will is a backup or safety net to the revocable trust. It is very important to change the ownership of assets to the revocable trust, a step that many people fail to follow through with after having their trust prepared. This is known as funding the trust. Often, some assets remain titled in the name of the decedent at death. This may cause the need for a probate administration in order to change ownership from the decedent to the beneficiary. Ownership by the revocable trust avoids the need for probate. But if a person neglects to transfer title to the trust during life, the pour-over will provides for the transfer of the assets to the trust at death. Unfortunately, for estates over an amount set by state law (typically $100,000, but your state may have a greater or lesser limit), the assets would have to be probated in order to transfer title to the trust and ultimately to the trust beneficiaries. A durable power of attorney allows for management of assets not owned by the trust and debts in the case of incapacity. While having a power of attorney is an essential part of any comprehensive estate plan, many financial institutions are reluctant to accept them due to fraud that sometimes occurs through the wrongful use of a power of attorney. This is all the more reason for having a fully funded revocable living trust, thereby allowing the trustee of the trust to manage the finances during any period of incapacity. An advance health care directive, also sometimes referred to as a health care power of attorney or health care proxy, is an extremely important document allowing for the agent to make personal decisions such as deciding where a person resides, authorizing medical procedures, requesting or withholding life support at end-of-life, and arranging for burial or cremation. The Health Insurance Portability and Accountability Act (HIPAA) greatly restricts the dissemination of private health information. While this is generally desirable, it can lead to unwanted results in situations such as when the health care agent is trying to make health care decisions for an individual or a successor trustee needs to have a doctor determine whether a person is capable of continuing to manage his or her own financial affairs. As such, an estate plan that fails to include a HIPAA authorization naming those entitled to access to private medical information is an incomplete estate plan. The lack of a trust, durable power of attorney, advance health care directive, and/or HIPAA authorization may require that a court proceeding be instituted so that a person can be appointed to manage the finances and/or make personal decisions for an incapacitated person. These court proceedings are called guardianships and/or conservatorships in most states, with a minority of states using a different term. A guardianship or conservatorship can be a very expensive process, in many cases requiring annual review of care decisions by the court along with the preparation of an accounting of how the individual’s income and assets were spent. Having a comprehensive estate plan in place will often negate the need for the involvement of the court with the personal and financial affairs of the incapacitated person. The importance of planning can be illustrated by the end-of-life stories of Joan Rivers and Casey Kasem. Joan Rivers often joked of death — even her late husband’s tragic suicide was not out of bounds. She turned to plastic surgery to battle signs of aging, but she wasn’t afraid to face the reality that she was growing older. Losing her memory because of aging was one of her favorite sources of comedy material. She tweeted: “I must admit I am nervous about getting Alzheimer’s. Once it hits, I might tell my best joke and never know it.” In her final book, Diary of a Mad Diva, she wrote:
This diary was written to the best of Joan Rivers’ memory. As such, some of the events may not be 100 percent … or even 5 percent factually correct. Miss Rivers is, after all, 235 years old, and frequently mistakes her daughter, Melissa, for the actor Laurence Fishburne.
Far from being the one worried about her own mortality, Rivers told her daughter, Melissa, over and over, that she and her grandson, Cooper, would be fine when the day came. Rivers said she had a remarkable life, even if it ended that day. That day came on September 4, 2014, when Melissa, as Joan’s agent under her advance health care directive, made the decision to remove Joan from life support. The story of Casey Kasem, the voice behind many radio shows such as “America’s Top 40” is very different. Kasem’s daughter, Kerri, had to battle with his wife, Jean, in the Los Angeles Probate Court to establish a conservatorship of the person and estate for Kasem. Kerri was named as temporary conservator of the person and estate of Kasem after Jean removed him from a Santa Monica nursing home to a facility in Washington without informing his children of their father’s whereabouts. On June 11, 2014, after a prolonged battle between his wife and children, Kasem’s nutrition and hydration was stopped by the judge overseeing the conservatorship. It is possible the family battle could have been avoided with proper planning and a clear communication of his wishes by Mr. Kasem to his wife and children. Our law firm focuses on incapacity planning and estate planning for clients of all levels of wealth. We also offer guardianship, conservatorship, probate and trust administration services. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information relating to incapacity planning and estate planning. You can get more information about a complimentary review of your clients’ existing estate plans and our planning and administration services by calling our office.

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Michael and his team work very closely with you to help build a strategy for you regarding estate planning. They do not overdo it. They work hard to be certain their suggestions/recommendations fit your needs. Michael asks great questions, listens well and delivers on his commitments. I was very appreciative and hugely satisfied.

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Celebrities Can Set A Good Example

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