Decedent’s IRA, naming a minor and a UTMA
My client is a guardian for a minor. The guardian is named as custodian of the minor’s deceased mother’s IRA. The IRA is properly tiltled and includes the name of the minor, guardian and decedent.
It was the deceased mother’s wish to keep control away from the minor (her daughter) until the minor turns 21 or later. Therefore an UTMA naming the decedents daughter was listed as IRA bene before the mother died. Will this serve her purpose? If so, will the $$s going into the UTMA become taxable?
If this concept is flawed, what can be done to protect the IRA from the daughter after she turns age 18?
Permalink Submitted by Al Fry on Wed, 2008-12-10 16:52
The RMDs coming out of the IRA are taxable. Ithe IRA becomes the daughter’s sole property at age 18 or 21, depending on the laws of that state, usually tied to the legal age of majority.
Permalink Submitted by Jeff Siegel on Wed, 2008-12-10 17:45
Thank you for that reply –
The daughter resides in Calif and pays tax on the annual RMDs.
The question becomes – Can the IRA reside inside a UTMA wrapper under Calif law? If this is so, the way I see it is that the IRA will not come under control of the daughter to a later year.
Permalink Submitted by Alan Spross on Wed, 2008-12-10 21:14
In CA, both the age of majority AND the termination date of an UTMA account is 18. Legally, once the daughter reaches 18, beneficial ownership and control of the IRA will transfer to her, and the control of the guardian/custodian will cease.
If the mother wanted to delay control of the IRA until 21 or longer, she would have had to set up a regular trust (UTMA is abbreviated form of trust) to receive the RMDs and maintain IRA control by the trustee under the terms of the trust.
It should also be noted that depending on age and student status of the child, IRA distributions can become subject to the kiddie tax rules including the recently increased age limits.
Permalink Submitted by mk foss on Thu, 2008-12-11 05:31
It is possible when establishing a CUTMA – California Uniform Transfer to Minors Act to defer payout until age 21 even though the age of majority is 18. That age (21) has to be specified when the account begins or else the funds are turned over at age 18.