Custodial Accounts in Pennsylvania

Written By: Attorney Jeffrey A. Marshall, CELA*  Do you want to leave part of your estate to your grandchild or another young family member?  If so, there is good news!  Pennsylvania has a law that covers gifts to young persons. Every state has a law that allows a parent or grandparent to make gifts to young beneficiaries.  These laws are usually called Gift or Transfer to "Minors" Acts.  They allow you to make a gift to a young person, while allowing the money to be managed by an older and more experienced "custodian."  Custodial accounts can be set up with virtually any bank or mutual fund and are easy to maintain.  You can create them  either during your lifetime, or in a Will or Trust document.  Many people put provisions in their Wills that state that any assets going to someone who is under age 21 will be held and invested by a custodian until the beneficiary reaches age 21.  Without this provision, the minors would receive their inheritance at age 18.   Until 2003 in Pennsylvania, a "minor" (for purposes of custodial accounts) was a person under age 21.  This meant that a custodian would have to turn over the funds to the minor when the minor reached age 21.  The problem is, many people are still financially immature on their 21st birthday.  They may still be in school and have limited experience dealing with money.  As a result, many parents and grandparents would prefer to protect the funds beyond age 21.  Until the new law in 2003, they were forced to create more complicated and expensive trust arrangements.     As a result of Act 50, custodial accounts may now continue to age 25. The individual who makes the gift specifies the age, up to 25, at which time the money is to be turned over to the young person.  If no age is specified, then the funds must be given to the minor at age 21.    What Should You Do? -If you have already created a Will or Trust that specifies that gifts to "minors" will be managed by a custodian, you might want to update that provision.  If you want the custodian to be permitted to continue to manage the account to age 25, your lawyer can make a simple change in your document to accomplish this.  - If your estate planning documents create a trust to hold funds for minors until they reach age 25, you might want to consider changing them to use the less complicated custodial account arrangement.  - If you intend to leave money to a minor and your planning documents do not allow for  a custodial arrangement, be aware that the minor will receive his or her funds at age 18.  If you think that is too young to come into an inheritance, talk to your elder law attorney about updating your plan.         Return to Estate Planning Articles