27 Nov Can creditors take an account I open for my grandchild?

Q. If I set up an account for my grandchild, can creditors I owe come after it? Can they garnish it?
— Grandma

A. It’s a great question.

The answer starts and ends with how you title the account.

If the account is going to be in your grandchild’s name and Social Security number, then the assets should be relatively safe, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

“I say `relatively’ because if you have been found to have transferred assets with the specific intent of defrauding creditors there is a chance that the courts could rule in the creditor’s favor,” Gallo said. “Assuming this is not the case, any assets that are not in your name will be protected from your creditors.”

If the assets remain in your name but simply put aside for a grandchild — leaving you the ability to access them for your own use — then they remain available to your creditors, he said.

Gallo said UTMA and UGMA accounts allow you to deposit money in trust for a grandchild while you or another adult has custodial rights over the account until your grandchild reaches the age of majority.

This will allow you to oversee the funds until your grandchild is old enough to make his or her own financial decisions but protect them from your creditors because you no longer have rights to use those funds for personal expenses, he said.

However, you must be careful to abide by UTMA/UGMA account regulations because once you violate these rules you open the account for creditor invasion, Gallo said.

The main rule to abide by is to never access these funds for your own use, he said.

“There are other types of trusts that can be used as well to protect the funds from creditors, the key being that the assets are no longer in your name,” he said.

If you have serious concerns about creditor protection, you may want to consult an attorney.

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This story was originally published on Sept. 27, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.