Question: My mother recently passed away, and she named me as the executor of her estate. In her will, she left behind some money for my two kids. She said that she wanted the gifts to be held in a custodial account with me as custodian. The remainder of her property, which wasn’t all that much, went to me.
Right now, the money that she earmarked for my children is sitting in an account at my local bank along with the other funds. Recently, my ex-spouse has taken me back to court on a number of issues related to child support. As part of our child support orders, the court has required both of us to pay for one-half of the children’s uninsured medical expenses.
My ex is saying that since she is a parent, she is a “co-guardian” and should be allowed access to the children’s money to pay for the children’s expenses. I am trying to tell her my mother’s money has nothing to do with our case. Does she have any right to this money? Can I pay for the children’s expenses with any of the money?
Answer: Your question involves issues related to your children’s estate. Although a child’s parents — or a sole surviving parent — can take physical care and custody of a child without formal court action, the same is not true regarding control of a child’s property in his or her estate. Assets gifted to a minor may require the creation of a guardianship. Guardianship of a minor’s estate ensures the property is kept safe until it is distributed to the minor when the guardianship terminates at age 18.
As a preliminary matter, everyone needs to remember that these funds belong to the children. It is not your money, and it is not your ex’s money. The law imposes a legal duty on parents to support their children. You cannot take your child’s funds to pay for support that you should be covering on your own. So, both parents should not be using this money for parental support obligations.
Whether a formal guardianship proceeding is required depends on certain factors including the size of the gift and the way in which the property is transferred. Gifts under $5,000 do not require a guardianship. Larger gifts, however, may require a formal guardianship unless the instrument used to transfer the property provides a mechanism to avoid guardianship.
In your situation, your mother directed these funds to be held in a custodial account. This usually refers to a “Uniform Transfer to Minors Account,” or “UTMA account,” which is an account for holding and managing a minor’s funds or other property without establishing a formal guardianship. The person who transfers the funds can nominate a custodian in a will or trust, such as your mother did, and it will be solely in the hands of the custodian. So, your ex-spouse has no access or right to the money.
Creating an UTMA account in a testamentary document like a will or a trust also gives the donor the ability to delay transfer of the gifted funds until the minor is 25. So if one prefers to have money distributed outright to a 25-year-old graduate student rather than to an 18-year-old high school graduate, the donor has the ability to make that choice in his or her will or trust. Absent any specific direction, however, the funds will go to the beneficiary when he or she turns 18.
Another advantage of a UTMA account is the custodian’s discretion to use the funds for the minor’s benefit as long as the funds are not used to fulfill parental support obligations such as food, clothing, shelter or ordinary medical care. While the funds cannot be used for ordinary medical expenses — because you and your ex should be covering those — you can access the funds for that special summer camp she wants to attend or that new computer she may need for school.
Although there are plenty of advantages in a UTMA account, note that income to the account may be subject to tax, and the funds will be “available” for the purposes of college financial aid. So a person will want to weigh the advantages and disadvantages in any particular situation.
You are right that your mother’s gift to the kids has nothing to do with your child-support case. Maintain the funds in an appropriate account, and follow through on your mother’s wishes to distribute the gifts to them when they reach adulthood.
Preston Morgan is a partner at Kopper, Morgan & Dietrich, a Davis law firm providing family law, estate planning and trust litigation representation. His column is published every other week in the Davis Enterprise. To pose a question to Preston Morgan, contact him at https://kopperlaw.com.
Disclaimer – The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. Any information, testimonials, or reviews on this website are not provided as a prediction, guarantee, or warranty of any particular result in your legal matter. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.