Uniform Transfers To Minors Act - UTMA

The UTMA (Uniform Trust to Minors Act) lets parents set up trusts and other fancy legal entities to keep money and assets on ice for their kids. When Junior was 18 and could make his own (bad) decisions, UTMA made it easy for the assets and cash to pass over to him.

So...how's it work? Well, Junior had a slot on a Disney reality show. It led to a one-hit-wonder song career, and Junior made about $300,000 a year (after agent, manager, and taxes) for about 5 years. The $1.5 million was put into a mutual fund, which compounded away so that, now at 18, Junior has access to the money, more or less however he wants it.

In this case, Junior earned the money himself. And yes, it can still sit in the Trust or an adjacent one. In addition to Junior's dough, Ma and Pa were able to transfer about $25k a year to Junior with no tax, since he was first born. That's $25k at age 1, same at age 2, 3, and 4...and all of the dough invested in a fund that goes up about 10% a year or so over time.

Finally, at 18, Junior has a total of $3 million in his UTMA. That entire nut, which used to be controlled by his parents with strict guidelines (no margin account, no spicy meatball venture capital funds, no risky real estate deals...just normal, public market investing for the long haul), is now his.

Just in time to feed Junior's drug habit. He'll have an awesome 18, 19, and 20 and be broke by the time he's 21, just like everyone else in his grid. Welcome to Hollywood.