Your Children May Be Endangered... By The Very UTMA Account Intended To Help Them (But, A Trust Can Help)

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 24, 2016

Trust Funds with HEMS provision can deter or guide beneficiaries with substance abuse problems

You don't know it yet, but unfettered access to assets in a UGMA/UTMA custodial account for minor who could develop substance abuse issues can destroy a lifetime of savings.

Key Takeaways
  • A dependency issue can threaten to deplete assets in a custodial account.   
  • Parents and custodians of UTMA UGMA accounts can transfer funds to a supplemental needs trust or Health education maintenance and support trust if it is in the best interest of the beneficiary.                                    
  • Assets of supplemental needs trusts or (HEMS) health education maintenance and support trusts can use the funds in the account for rehabilitation programs for the beneficiary.

Substance Abuse Threatens UTMA Assets

A UTMA/UGMA custodial account is opened when children are still very young to transfer ownership and/or build wealth for later years, and well before any display of irresponsible behavior or substance abuse issues arise. When children become the legal age of 18, or in some states as old as 18, they gain unfettered access to potentially large sums of money. Parents who have witnessed irresponsible behavior are often deeply concerned about the assets in the custodial account being spent foolishly.

You Can Still Preserve The Funds

While parents can't go back in time to select better savings plans for their child, there are still some options available to them to help preserve the wealth in the account. Before adolescents turn (the age of majority) 18 or 21, parents have the ability to remove custodial assets so long as the intended use will benefit the beneficiary. If parents are concerned about the funds being spent recklessly, they can open a trust fund keeping the minor as the beneficiary. A trust fund would then allow the parents to set certain restrictions on how and when the assets are distributed. This is permissible since it is in the best interest of the beneficiary and the assets remain for the sole benefit of the youth.

Treatment Expenses Can Be 

If the beneficiary encounters drug or alcohol abuse issues before turning the age of majority for UTMA/UGMA’s, parents have the right to transfer the funds to a Supplemental Needs or Health Education Maintenance and Support Trust (HEMS). A trust with these provisions will allow the use of funds to help the adolescent with rehabilitation programs or other drug and alcohol control resources.

Know Your Options

The use of comprehensive trust and trustee services allow for parents to withhold assets for children until they demonstrate financial maturity or help in the treatment of substance abuse expenses if they encounter issues with drug and alcohol abuse during their formative years.  These services are now available easily and affordable with online trustees such as Kiss Trust.

Tips On How To Maximize The Effectiveness  Of Your Bad Behavior Penalty Elections

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Tags: Irrevocable Trust, UGMA, UTMA

True Story: Can a trust fund provide protection where an UTMA can't?

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 19, 2016


A diagnosis of mental illness is always tough on both the patient and the close friends and family members.  While it may come as a relief to finally have professional recognition of a problem, the certification that the problem exists can be difficult to handle.  As advanced as our society has become, those with certain mental illnesses still find themselves stigmatized and forced to the fringes of human interaction.

When Allison’s daughter, Summer, was diagnosed with bipolar disorder at age 15, Allison knew that the young woman would need a lot of help and support to deal with the diagnosis, the treatment and the daily medication regimen needed to keep her on an even keel.  Unfortunately, as a single mother, Allison didn’t have as much time as she would have wanted to attend to her daughter’s needs and give her all the support necessary to protect her fragile psyche and keep at bay those who would seek to prey on her perceived vulnerability.

In her up cycles, Summer was a vivacious, articulate, engaging and charming young woman who could light up a room.  But when that cycle ended and she entered a down phase, she would spend hours at a time in bed or in a living room chair, lost in dark thoughts and tears.

As part of her divorce settlement, Allison had insisted that her ex-husband make regular payments into an UTMA, or Uniform Transfer to Minors Account, to pay for Summer’s college expenses.  He had done so faithfully, and Allison was relieved to know that at least she wouldn’t have the worry of coming up with tuition, fees and living expenses to deal with on top of everything else.  When she turned 18, the entire amount of the UTMA would be hers to do with as she chose. While that prospect gave Allison some pause, she knew that she’d raised her daughter well and trusted that she’d make good choices.

The first semester went great, with Summer getting acclimated to life in the city, making new friends and enjoying her classes.  As winter turned to spring, though, Summer moved off campus into an apartment with new “friends” on a hand shake arrangement and began to slide into a down cycle.  After disclosing to her new roommates, about her hefty UTMA account they devised a scheme to take advantage of her vulnerability convincing Summer that she owed unreasonable sums of money to them for past room and board.  And threatened to have her arrested if she did not make good on her debits immediately.

As the account rapidly dwindled Summer only became more depressed. Rather than seeing her therapist and getting her medication adjusted, Summer withdrew, her grades plummeted and she soon quit going to class. 

When Summer finally revealed the situation to her mother Allison, Allison was frantic and immediately contacted several trust companies in an attempt to preserve what was left of her daughters account, however it was too late.  Within a few short weeks, her “friends” had all but completely exhausted the money in Summer’s UTMA account and moved on.

Summer did manage to get through the hard times, and her faculty advisors, wracked with guilt at having not seen her plight, petitioned the art school for additional money to help her continue her schooling.  She managed to finish school, but all the money from the UTMA was gone, and she had a very difficult time supporting herself with her art alone after school, ending up in a series of “small” jobs which kept her bills paid but also kept her from pursuing her dream.

If Allison had chosen to put Summer’s college savings into a third-party managed education trust, such as those offered by Kiss Trust through Eastern Point Trust Company (rather than an UTMA), Summer’s false friends would never have been able to wreak the havoc they did.  With controlled distributions tied to things like successful course completions, finishing school and other milestones, a Kiss Trust encourages positive life choices.  The trust also allows the grantor to build in penalties such as suspension of benefits for bad behavior, failure at school, alcohol or drug abuse issues and the like.  A third-party managed trust is a far more secure way to handle the large (or even not so large) sums of money that can become available to a young person upon attaining their majority.


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Tags: Trust Fund, UGMA, UTMA

How UTMA/UGMA Custodial Accounts Impact Student Financial Aid Eligibility

Posted by Aimee O'Grady, Child Savings Specialist on Feb 16, 2016


Parents should understand how UTMA and UGMA accounts could impact FAFSA eligibility for their children before they commit to a custodial account.

Key Takeaways

  • All assets belonging to a minor impact financial aid
  • Both minor and parental assets are recorded on the Free Application for Federal Student Aid
  • Assets belonging to a minor are weighed differently than assets belonging to parents

Convenience Can Cost You

UGMA and UTMA accounts are established by parents and guardians while their children are still young. These accounts are quick and easy to set up and serve as a depository for monetary gifts received over the minor’s lifetime.  They can also serve as college savings plans, since while students advance through school their savings accounts grow. During the child’s senior year of college, as students begin the financial aid process to help alleviate some of the financial burden of college tuition, they are surprised to see the role UGMA and UTMA accounts play and the impact that custodial accounts have on financial aid eligibility.

Impact on Financial Aid

FAFSA applications can be started on January of every year, where parents, college students, and students in their final year of high school can complete the Free Application for Federal Student Aid (FAFSA) until a specified date.  All assets, large and small, can potentially impact financial aid eligibility. Every asset belonging to the child (and the parents for that matter) diminishes the eligibility amount for grants and some scholarships.

Since assets in custodial accounts, such as UGMAs and UTMAs, belong to the minor, they are counted among the minor’s assets. The federal government treats assets belonging to a minor differently than those belonging to an adult. In 2016, the current financial aid formula requires that the minor contribute 20% of their assets to college costs annually prior to becoming eligible for financial aid; whereas parents must only contribute 5.6% of their assets. What this means is that UTMAs and UGMAs can hurt the minor's eligibility more than parent accounts.

Poor planning and the use of an inadequate savings account can cost thousands in lost grants, loans and other financial aid opportunities.  With the increased scrutiny financial aid officers employ since the federal takeover of the US student loan program, smart planning is imperative.  Luckily, other options such as specially formed irrevocable trusts help students and parents preserve positive treatment during the financial aid consideration process.

Learn more about navigating through the financial aid process and how we can help.

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Tags: Financial Aid, UGMA, UTMA

7 Hidden Setbacks to UTMA and UGMA Custodial Accounts

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 10, 2016


UTMA and UGMA accounts may look good on the outside, but parents should be aware of the many hidden disadvantages to these custodial accounts.

Key Takeaways

  • Custodial accounts have a number of limitations that could prevent your money from being used how you want                             
  • UTMA and UGMA custodial accounts can negatively impact a minor’s eligibility to financial aid
  • It is possible to roll UTMA and UGMA accounts into a Kiss Trust for minors


Explaining Custodial Accounts

UTMA and UGMA accounts are a popular option for investors to easily transfer large sums of money, real estate, or other inheritance to a minor without the need or expense of an attorney. While the accounts have some advantages, primarily their simplicity to establish, there are also a number of disadvantages that every investor (parent and guardian) should be aware of.


Disadvantages of UTMA and UGMA Accounts

While these accounts may have their advantages, here are the inconvenient disadvantages that could cost your child thousands in student loan debt:

  • By definition, these irrevocable trusts cannot be taken back by the Giftor. Once the assets are transferred to the minor, they belong to the minor. It is important for investors not to transfer funds that they may need to recover.
  • Regardless of the maturity level of the UGMA UTMA beneficiary, at age 18-21, depending on your state, the assets must transfer to the young adult at their request.
  • Assets in UTMA and UGMA accounts impact financial aid because the assets owned by the child are weighted more heavily than parental assets (according to Forbes, custodial accounts only make sense if you are certain your child will not need financial aid).
  • Money in a custodial account cannot be transferred to another child. The assets belong to one child only. This may impact families who are unable to give as much money to subsequent children as they were to for the first one.
  • Custodians have no control over how the funds are used, meaning that the child may use these assets for anything, even if the intent was to save for their education.
  • If the Giftor serves as the custodian and dies before the account matures, the assets in the account may be included among the custodian’s assets for estate tax purposes.
  • If the child dies prior to receiving the assets in the account, the accounts are dealt with according to the laws of the state, which may not be in your favor.
Know the Real Costs

Before opening a savings account for a minor, it is important to review disadvantages, as well as the advantages and consider alternatives. Even the best intentions can come back to haunt parents who establish UTMA or UGMA accounts who are poorly informed. Many financial institutions open these accounts without advising the custodian of their drawbacks and limitations. If parents have UTMA / UGMA accounts already established, some financial institutions offer opportunities to roll custodial accounts into alternatives such as an custom irrevocable trust.


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Tags: Student Financial Aid, Financial Aid, UGMA, UTMA

How A Trust Protected UTMA Assets From Poor Choices (And How To Roll UTMAs and UGMAs Into A Kiss Trust)

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 5, 2016


UTMA assets are not protected against poor decisions or frivolousness, but there is a way to protect assets with Kiss Trust.

Key Takeaways

  • Assets within an UTMA  and UGMA accounts are given to the minor at the maturity age of 18 or 21, which can leave room for misuse
  • UTMA  and UGMA accounts can rollover into an irrevocable trust to provide extra security for parents and custodians
  • Kiss Trust makes UTMA and UGMA conversions easy with our trust solutions

How A Trust Protected UTMA Assets From Poor Choices

The birth of a child is a huge event for any couple, and when Mark and Brittany welcomed Ashlynn to the world, they wanted to make sure that her life would be full of far less struggle and uncertainty than theirs had been. They had both come from humble backgrounds, and through many years of hard work Mark had established himself as a dentist with a thriving practice, and Brittany had found fulfilling work as an attorney.

Before Ashlynn was even born, Mark and Brittany began planning for her financial future. They looked at their options, and decided that a Uniform Transfer to Minor Account, or UTMA, was the best way to go. They started with a small deposit, just a few hundred dollars, and added to it on a regular schedule over the years. Family members who were so inclined also made contributions, and by the time Ashlynn was in her teens there were tens of thousands of dollars in the account.

Unfortunately, that’s also when the trouble began. Brittany got a job offer at a firm in another town, Mark sold his practice and they relocated. In the new town, Ashlynn made friends with the wrong sort of kids, and the usual adolescent straining at the rules was magnified into a series of small offenses. She was caught shoplifting at a mall jewelry store even though she had money in her purse to pay for the purloined goods. She and two other girls were caught smoking marijuana on school property after a basketball game and were expelled. It was soon clear that Mark and Brittany’s darling girl was heading down the wrong path despite their best efforts.

On her seventeenth birthday, Ashlynn announced to her parents that she intended to drop out of high school. She wanted to move to Chicago and start a band with some of the same school friends with whom she’d gotten in trouble. She knew about the UTMA, and knew that the day she turned 18 she’d have access to an amount of money that was now nearing six digits. She figured she could work odd jobs until then and support herself until her ship came in, then she’d use the money to launch her career.

Mark and Brittany were horrified. They knew that Ashlynn was making a poor choice, and that all the money they’d set by for her college education and to get her started in life was going to be squandered. But there was nothing they could do. By the terms of the UTMA, Ashlynn had completely unfettered access to the entire proceeds of the account at age 18.

If the parents had instead chosen to set up a Kiss Trust instead of an UTMA, they could have built in requirements for things like education and good behavior that would have helped ensure that the money they’d set-aside was used wisely. With a Kiss Trust, the creator can set milestones for dispensations, and build in penalties for poor choices such as failing to finish school, engaging in criminal activity or substance abuse. With a Kiss Trust in place, Ashlynn could still have made the same choices, but she wouldn’t have had unfettered access to a large amount of money to make such choices more appealing.

No one wants to think of their children growing up and making decisions that put their future in peril, but with a Kiss Trust rather than an UTMA, at least you can make sure they are only rewarded for steps down the right path. 

How To Roll UTMAs and UGMAs Into A Kiss Trust

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The History Of The UGMA Account

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 4, 2016


The UGMA was created to help investors transfer property to minors.

Key Takeaways

  • UGMA allows the transfer of securities to minors

  • The act allows minors to enter into legally binding contracts

  • Every state and district has adopted some form of the UGMA


UGMA Defined

In 1956, the United Law Commission announced the Uniform Gifts to Minors Act (UGMA). This Act closely modeled “Act concerning Gifts of Securities to Minors” which was sponsored by the New York Stock Exchange and the Association of Stock Exchange Firms. This predecessor was adopted in 14 states. The 1956 model broadened the act so that it allowed gifts of money as well. About a decade later the act was again expanded to broaden the types of financial institutions that could serve as depositories of custodial funds. Not all states adopted the 1966 revisions, but rather made their own revisions leading to non-uniformity. Uniformity is important since the act is intended to avoid conflicts of law when the laws of more than one state apply. This Act was later changed to refer to “Transfers” rather than “Gifts” which is today the Uniform Transfer to Minors Act.


UGMA Today

Today, every state and district has adopted some form of the UGMA. The act permits minors to own property, such as securities without requiring an attorney to draft a trust. The act allows minors to enter into legally binding contracts allowing parents to transfer assets directly to children. When the minor turns 18 they receive full access to the account. Investors select UGMA accounts for minors because they can be opened quickly by filling out an application form and providing a social security number.


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Tags: UGMA

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