Importance of Custodial Accounts for Minors

In our trusts, we usually include a provision that any monies that would be paid out of the trust to a minor child will be left to a custodian, selected by the trustee, in a California Uniform Transfers to Minors Act (CUTMA) Account.  Today at Heckerling, Natalie Choate, in her presentation on Beneficiary Designations for Retirement Plans suggested that a CUTMA account would also allow the distributions from a qualified retirement plan to be accumulated at least until the age of twenty-one (21) of age (which is the age most states require accounts to end), and maybe even to the age of twenty-five (25 which is the age that California terminates these accounts..

Comments

[Richard Lense]

Question: If a CUTMA account is established for a minor and the account is funded with an IRA, two issues are presented:
1. Will interim distributions from the custodian to the beneficiary (before he or she reachs 25) be taxed as ordinary income?
2. When the IRA proceeds are distributed to the minor when he or she reaches 25, can the recipient rollover the distribution tax free to a qualified retirement account?
Thank you-
Richard Lense