By Rob Wrubel, CFP ^®

The day my daughter was born, I knew she had Down syndrome. When she was born, the nurse took my newborn to clean her off and I remarked that her nose looked different. I did not know until the doctor came in later that evening that her nose bridge was one sign that she likely had Down syndrome and the doctor let us know that life was going to be different in ways we had not planned.

As a financial planner, it took me a few months to understand that saving and investing for her future meant revisiting the financial tools that we used or expected to use.

My son was born 18 months earlier and we reviewed investment options for his future needs including college spending. There were three primary choices to save and invest for his needs – an UTMA (or UGMA) account, a 529 plan and a Coverdell Education Savings Account (“Coverdells” or education IRAs). Investing in my name as a parent or funding a trust were two other options with different tax and gifting issues so those were not considered when he was young.

Uniformed Transfers to Minors Act accounts, or UTMAs (some states called them Uniform Gifts to Minors Act or UGMAs), allow minors to receive cash or securities without needing a conservator or guardian. UTMA accounts are unique – they let a parent oversee an account for a child without needing to hire an attorney to write a trust. UTMAs have some tax benefits too.

Funds in the UTMA account benefit the child – a parent cannot raid the account to pay for usual living expenses without violating the law. It segregates assets between parents and children while giving the parents the authority to invest and spend to benefit the child. Pretty good overall – easy to set up and inexpensive to maintain.

529s and Coverdells came along and improved the tax benefits available to save for college and certain other expenses. UTMAs fell out of favor for college spending but still play a role in a family’s financial life. Some parents fund 529s and UTMAs as the UTMA is more flexible in how the money can be spent. UTMAs can be used for private high schools, braces, new cars, job training, camps and more while 529s are typically used for college-level needs. UTMAs are a great way to give someone a head start on buying a house or car and take on adult responsibilities as they reach the age of ownership in your state – usually 18 or 21.

UTMA’s throw a wrench into special-needs planning. Parents sometimes start UTMAs when a child is born, invest those funds and add to the account with birthday gifts and other contributions. Parents move money to an account for their sons and daughters, gain a small tax advantage and have a pool of money to use as their children grow. What could go wrong?

The Supplemental Security Income (SSI) benefit depends on an individual meeting the standard of a qualifying disability and an asset test. The asset test of countable resources means a person does not receive SSI benefits if he or she has resources above $2,000.  An UTMA account counts as a resource for the person with a disability when he or she reaches the age of majority in each state (18 or 21).

That account means your family member no longer qualifies for SSI benefits and could also lose their Medicaid-funded supports. Housing, health care, job training and community activities funded by Medicaid could go away.

You saved for years to have an account for your family member with a disability in an UTMA. You diligently put money away each month or year with the expectation of providing financial stability and resources for your family member. And now, that account puts SSI and the other benefits that come with it at risk.

Another challenge comes up once the UTMA beneficiary reaches the age of majority. The prior person in charge, usually the parent, no longer has access to spend funds or move them out of the account.

In my office, once the beneficiary of an UTMA account turns 21, we can no longer talk to the parents. Hard stop. The money legally belongs to the beneficiary and only he or she has authority to make decisions about the account – such as whether to invest it or spend it. Guardians, in some states, take over this role for the person with a disability but that is not true everywhere.

So, what can you do? The age of your family member matters.

For people under the applicable age in your state, either 18 or 21, you have a few options. Consider an ABLE account. ABLE accounts can be owned by a person with a qualifying disability and it does not count as a resource towards that $2,000 resource limit. ABLE accounts have two challenges to moving funds. First – they can only accept $19,000 per year in 2025 (unless a person works). Second – ABLE accounts with more than $100,000 lead to a loss of SSI income but, importantly, without the loss of Medicaid funding.

Over the age of majority, getting funds out of the UTMA adds the challenge of helping your family member take ownership of the account and then moving it out of his or her name. The ABLE remains one option to move funds. Another is to work with your family member to spend the UTMA account on immediate needs – health care, furniture, travel and more.

A third option is the pooled-income trust. Pooled-income trusts are sponsored by a nonprofit organization and are designed to help people move assets from their names to a simple trust with professional oversight. Pooled-income trusts are easy to join and transfer assets to and the funds in an UTMA can be removed within days or weeks.

The last option is to work with your legal team on a first-party funded special-needs trust. Going this route takes time and has more expense than the other options but is worth it if the UTMA assets are significant.

Generally, UTMA accounts are not a preferred tool to save and invest in for planning for your family member with an intellectual or developmental disability. The transfer of ownership at a future date creates a liability that could lead to a loss of benefits.

I had a lot to learn when my daughter was born and an important lesson was that some of the standard financial planning tools do not work. Find a good team to help unwind these accounts and to help you develop different strategies to create family wealth to support your future planning needs.

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This article is not intended as investment advice or representative of any specific investment strategy. Consult with your legal, tax, benefits and investment team before taking any action.