Can you Move a Uniform Transfers to Minors Act Account to a 529 Plan?

Can you Move a Uniform Transfers to Minors Act Account to a 529 Plan?

By Adam J. Gottlieb

Introduction
 
As the Beneficiary of an UTMA account approaches the age when the account will terminate (“Termination Age”, usually 18 or 21), the UTMA Custodian may be considering his or her options as to the UTMA account, knowing that the Beneficiary may not be ready to manage the property which is about to be available to the Beneficiary. Often, the Custodian is a parent of the Beneficiary. There may already be disagreement as to this account between the Beneficiary and the Custodian. A large UTMA account value also may exacerbate the problem.
Thus, the Custodian must plan ahead to avert a fiscal (and perhaps a family) disaster. However, the law states that the Beneficiary must have access to the UTMA property at the termination age. Preventing the Beneficiary from accessing his own property may violate the fiduciary duty the Custodian has to the Beneficiary. What can a Custodian do?
The Custodian may consider transferring the UTMA property to the following: A trust for the benefit of the Beneficiary; a limited liability company or limited partnership, or a Qualified Tuition Program under §529 of the Internal Revenue Code (a “529 Plan”). In this entry, I have focused on using a 529 Plan.  
 
529 Plans
 
New York’s 529 Plan permits the investment of UTMA property into a 529 Plan. Contribution of UTMA property to a 529 Plan superimposes new restrictions to the 529 Plan in addition to the UTMA restrictions, rather than subjecting the contributed property solely to the 529 Plan rules. This is important since an Account Owner of a pure 529 Plan (one without any contributions from an UTMA account) may change the Plan beneficiary at any time. Also, the Account Owner of the pure 529 Plan may continue to be the Account Owner until he or she decides to name a new Account Owner. 
However, the UTMA/529 Plan Beneficiary can become the account owner of the 529 Plan upon reaching the termination age. Another restriction is that the UTMA/529 Plan Beneficiary cannot be changed. Of course, both these restrictions and others originate with the UTMA rules. 
 
Conclusion
 
            With some planning, the Custodian can try to minimize the chance that the Beneficiary will squander the property at an early age.