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

Tags: Irrevocable Trust, UGMA, UTMA

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