Gifts to Minors: LLCs Can Protect Them from Creditors and Predators
You’ve decided to fund a Uniform Gifts to Minor Account, but have you thought about how to make sure that legacy will be secure?


Uniform Gifts to Minor Accounts are very popular for parents and other relatives when establishing financial accounts for minor children. They are a means of making a “controllable” gift to a minor, but they come with some caveats that anyone considering them should understand.
When are These Types of Gifts Used?
For example, say you have a family with young children and you want to utilize the $15,000 per person annual gift exclusion. With this exclusion, anyone can gift up to $15,000 per year to as many people as they like without having to report the gift to the IRS. (For more, please see The Perplexing Tax You May Never Have to Pay.) This will allow parents to set up a gift account as described below. Each year, Mom and Dad together give $30,000 to these special accounts so when the kids reach adulthood, they have a source of capital to start their lives.
This is accomplished by creating a custodial account at a financial institution for the benefit of the minor child. These accounts are generally managed by the parent, although another person can be designated as the custodian. Such a custodial account can be established under the state’s Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA).

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A Transfer vs. a Gift
The differences between the UTMA and the UGMA relate to the types of investments that can be held in each account and the dates in which each account terminates and is turned over to the child. Generally, the UGMA authorizes cash, bank accounts, stocks, bonds and mutual funds. The UTMA broadens these holdings to include real estate and other property, such as limited partnership and LLC interests.
Caveat: Suppose by the time the minor attains the age set forth in the state law for termination of the custodianship (as early as 18 under the UGMA and as late as 25 under the UTMA) the account has grown to a substantial sum, say, hundreds of thousands of dollars or more. Would the donor-parent feel comfortable turning over such a large sum without any controls to the child? What can be done to retain control of the funds beyond the statutory age for termination?
Protect Your Gift with an LLC
When parents first establish gift accounts, the beneficiaries are young. The parents have no way to know how fiscally responsible their children will be once they reach the age for distributions. When the age for distributions is attained (18 or 21, as the case may be), Mom and Dad may feel the child is not yet mature and responsible enough to receive such large sums.
For maximum asset protection, the solution can be setting up the gift account as a Limited Liability Company (LLC), instead of just depositing the funds into the account directly. And, depending on the donor’s objectives, that LLC can be established as a domestic account or an international account. In either case, placing the gifts into an LLC strengthens the protection immeasurably as control of the LLC vests with the manager, who is the parent. Without an LLC, any funds deposited directly into the account would be exposed to creditors and predators of the child. The LLC will be governed by a customized operating agreement containing a number of protective provisions. The identity of the members of the LLC is determined by the circumstances.
When to use an international LLC: If substantial continuing protection of the funds (from future creditors as well as future creditors and predators, including civil suits, divorcing spouses, bankruptcy, IRS liens, etc.) is desired, the solution should be internationally based. The asset protection laws internationally are generally more protective than those in the U.S. This LLC would be completely owned by the custodial account and managed by an overseas management company, which would be operated by the personnel of an international trust company. In this scenario the parent gives up all control of the money to someone they hire. This strategy is employed so that creditors and predators of the children cannot reach the assets. The manager of the LLC makes distributions to the children when there are no creditors.
When to use a domestic LLC: But if the goal is merely to keep control of the funds from the child, the answer can be simply to create a domestic LLC. The LLC could be structured as a domestic member-managed LLC. This scenario is typically structured with a parent serving as the 1% managing member and the custodial account established being the 99% non-managing member.
In either case, the specialized operating agreement can provide that no member distributions can be made to any member before a certain date, and that the manager is engaged at least until then. There are additional protective provisions incorporated into the governing documents that can provide extraordinary levels of protection.
In Conclusion
In many instances it will be appropriate to implement the above-discussed additional controls and protections of the child’s custodial account. Only an attorney experienced in this area of the law should be used to implement this type of sophisticated planning.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jeffrey M. Verdon, Esq. is the lead asset protection and tax partner at the national full-service law firm of Falcon Rappaport & Berkman. With more than 30 years of experience in designing and implementing integrated estate planning and asset protection structures, Mr. Verdon serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives. Over the past four years, he has contributed 25 articles to the Kiplinger Building Wealth online platform.
-
ESPN to Acquire NFL Network and RedZone in Exchange for 10% Equity Stake
ESPN will take control of NFL Network and RedZone, while the NFL secures a 10% stake in ESPN — a move that could change how fans watch football.
-
Stocks Rally on Apple Strength: Stock Market Today
The iPhone maker will boost its U.S. investment by $100 billion, which sent the Dow Jones stock soaring.
-
I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should Have
Every adult should have a health care proxy and power of attorney — they save loved ones time, money and stress if a sudden illness or injury leaves you incapacitated.
-
I'm a Financial Professional: Here's My Investing Playbook for Political Uncertainty
For successful long-term investing in a politically charged environment, investors should focus on economic data, have a diversified portfolio and resist reacting to daily headlines.
-
The Truth About the Dark Side of Rooftop Solar Panels
Rampant bankruptcies in the solar panel industry have left many consumers with systems that don't work and no way to get them fixed. Worse, they're being hounded to keep paying despite not receiving what they were promised. What can they do?
-
Six Big Beautiful Opportunities: Advisers' Guide to Tax and Client Strategies
Here are several ways financial professionals can help their clients maximize opportunities in the One Big Beautiful Bill Act, which extends key TCJA provisions, introduces increased deductions for people 65 and older and more.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's Guide
When the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting Tips
You're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a Portfolio
Exchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term Care
Planning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.