In an attempt to do their own mini-estate plan, many people add their children’s or grandchildren’s names to financial assets. These assets could include saving accounts, checking accounts, Christmas club accounts, CDs, life insurance policies, annuities, U.S. Savings Bonds, etc.
We have previously discussed the pitfalls of joint ownership. But what if these assets are held in a custodial arrangement, such as under the Uniform Gift to Minors Act (“UGMA”), under the Uniform Transfers to Minors Act (“UTMA”), as “in trust for” (“ITF”) accounts or as Qualified Tuition Programs under Section 529 of the Internal Revenue Code (“529 Plans”).
Once you deposit funds into these types of accounts or re-register these types of financial instruments into the children’s or grandchildren’s names, the assets are generally no longer yours. Except for certain 529 Plans, you cannot withdraw the funds for your use or to pay your expenses. They are considered completed gifts to your children and/or grandchildren. You manage these funds for your children and/or grandchildren under the terms of the agreement you entered into with the financial institution holding the asset.
Do you know who will manage the assets for your children or grandchildren when you are unable? Upon your mental disability, if your name is the only custodian on these assets with no named successor, your children or grandchildren may be unable to access the assets without a court order. Your family would have to start a probate proceeding with the sole purpose to name a successor custodian for these assets.
The easiest way to avoid probate of these assets is to name a successor custodian. This can be done in a number of ways. Many times, you can name a successor as part of your agreement with the financial institution which holds the asset.
A better alternative than trying to keep track of successor custodians of each of the assets, is to have a comprehensive will or trust based estate plan which names a successor custodian. For all these assets, you would name your successor custodian in one place, such as your will, your financial power of attorney, your living trust or a separate document.
By naming a successor custodian for these assets, in the event that something happens to you, you can be assured that the assets will be distributed in accordance with your wishes without any undue delay and without court involvement.
By: Matthew M. Wallace, CPA JD
Published edited February 1, 2009 in The Times Herald newpaper, Port Huron, Michigan as: Children’s accounts may need to be probated