Gifting to Minors

As a parent or grandparent, you may want to provide gifts for your minor children, grandchildren, or a cause championed by a nonprofit. Different legal strategies may be used to handle these gifts in order to achieve the desired legal effect. Under federal law, any transfer to another, directly or indirectly, where full consideration isn’t received in return is a gift. However, gifts that are no more than the annual exclusion for the calendar year are not taxed. The law shifts with regard to the annual exclusion; the federal annual exclusion for 2021 is $15,000. New York doesn’t currently have a separate gift tax. If you hope to make a gift to a minor, you should call seasoned New York City trust and estates attorney Jules Haas. Mr. Haas has represented clients for more than three decades and can advise you on the best strategy for gifting to minors considering your specific situation.

New York has adopted the Uniform Transfer to Minors Act (UTMA) which is used to protect the assets minors receive. This law describes the circumstances under which a minor can receive his or her gift funds. Under UTMA, you can establish a custodial account for a minor child into which you can deposit money as a gift to the minor. The child can access it when he or she is 21.

While 21 is the age of majority for all accounts, you can, as a donor, specifically stipulate that the age of 18 is the age of minority for the child being gifted. Other adults can also transfer to minor children and any bank or trust company can serve as the custodian of the account. You can specify any number of people who could be called upon to serve as substitutes in case disability or death befalls the first nominated custodian. However, it’s important to use care in your choice of custodian, as well as substitute custodians since a custodian has the discretion to deploy the money in an irrevocable account for the minor’s benefit.

Under Estates, Powers, and Trusts Law § 7-6.3, a New York City attorney can help you revocably nominate a custodian to receive property for your minor beneficiary by: (1) using language that names the custodian for the minor and (2) specifies the transfer is under the New York Uniform Transfers to Minors Act upon occurrence of a future event. You can nominate the custodian in a will, trust, deed or other writing or instrument of contractual rights. The nomination of a custodian won’t create custodial property, however, until the instrument used to nominate the custodian becomes irrevocable or there is a transfer under § 7-6.9. Unless you’ve revoked the nomination of the custodian, such as through a change in your will, once the triggering future event occurs, the custodianship becomes effective and irrevocable.

You must remain aware that what you put into an irrevocable account as a gift can’t be returned to you. Moreover, the custodian has significant power over the account. He can hold and manage and invest the funds as long as he abides by the standard of care used by a prudent person dealing with another’s property and use the funds for the minor’s benefit in whatever amount he believes is appropriate. He doesn’t need a court order.. At all times, the custodial property must be kept distinct from other property.

When you make a gift to a minor, you need to be aware that once a minor attains the age of majority, the assets will need to be turned over. Not all 21-year-olds have the financial acumen to manage their money. You may wish to factor that into your estate planning. For instance, if a child becomes addicted to alcohol or develops a mental health disorder, he may not be capable of managing his own funds and the amount of the funds could prevent state or federal aid that would be available to a disabled person.

Mr. Haas can discuss whether there are alternatives that might allow you to have greater control over the transfer. For instance, you could set up a trust in which you serve as the trustee and your child is named as a beneficiary. This set-up allows you to make funds available to your child but addresses the risks of losing money due to a young person making mistakes or developing a disorder. Or you can include provisions about how the trust principal is used. You may wish to add a condition to the trust that if the minor has special needs or disabilities the trust principal and income will be held in a special needs trust for his benefit.

New York City trust and estates attorney Jules Haas may be able to represent you in connection with gifting to minors. Mr. Haas represents clients in Manhattan, the Bronx, Queens, Kings, Richmond, Nassau, Suffolk, and Westchester Counties. Call him at (212) 355-2575 or contact us through our online form.