Many of us use the Uniform Gifts to Minors Act (UGMA) to hold money or other property for a minor child that otherwise would not be able to be held in their name.
This is primarily a way to hold title to assets, it is not a tax strategy. In general the kiddie tax applies to the unearned income (interest, dividends and capital gains) of a full time student under age 24. The kiddie tax rates are compressed and do not provide a significant savings.
However, what happens when the minor child turns 18? Technically they are in control of the money or other property.
Consideration should be given to using a Family Limited Partnership (FLP) as an alternative. This vehicle offers some advantages:
- Simplifies estate planning
- Ease of systematic transfers
- Maintenance controls past age 18
- Offers creditor protection
- Can act effectively as part of pre-nuptial planning
- Valuation discounts on gifts
Our experienced KRD professionals can help implement plans for gifting, estate planning and wealth transfers. Contact us today to learn more.