Uniform Transfers to Minors Act states (Section 14, paragraph a):

A custodian may deliver or pay to the minor or expend for the minor's benefit so much of the custodial property as the custodian considers advisable for the use and benefit of the minor, without court order and without regard to (i) the duty or ability of the custodian personally or of any other person to support the minor, or (ii) any other income or property of the minor which may be applicable or available for that purpose.

My question is: I am the custodian of a life insurance policy on my wife's life that we make the premium payments as a yearly gift to our grand daughter to pay the premium on the life insurance under the UTMA, premium is $11,924.50, its not doing well so can I cash it in and pay premiums on a policy on grand daughters life, she's 7 as it will be worth much more even to borrow on or cash it in when needed when she's 21 or later or never it will be up to her.

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    Why in the world are you using insurance as a long term investment? – JTP - Apologise to Monica Aug 4 '18 at 1:37
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    Why are you using an UTMA for life insurance? – RonJohn Aug 4 '18 at 2:46
  • @JoeTaxpayer probably for the same reason that my father still insists on paying the premiums on the Whole Life policies that my grandparents opened for me and my children. (Some battles are not worth fighting.) – RonJohn Aug 4 '18 at 2:49
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    @RonJohn - when my daughter was born, the estate tax exemption was below $1M. The better way to buy term life was to do it within a trust, so it would not be part of the estate for tax purposes, as it would be owned by the trust, and purchased with a irrevocable gift. The UTMA serves a similar purpose. It’s the only part of the question that makes any sense to me. The fact that OP is not happy with current WL return but thinking of going back for another round? – JTP - Apologise to Monica Aug 4 '18 at 12:24

You need to decide what you are trying protect, what you are trying to invest for, and what makes the most sense given your situation.

You need to sit down with a fee only financial planner who can look at your situation: married, kids, grand kids; your income; and your needs and goals, and craft a plan. A fee only planner will for a set amount of money or a set hourly rate come up with a plan with options. They will not recommend specific products but will define the types of products you should purchase or invest in.

An insurance policy to protect the loss of income from the death of a spouse or parent makes sense. Investments to provide money for education or other needs X years in the future makes sense. Wrapping them into a complex product that might grow over the next 15 years adds complexity and risk that needn't be there. The true winner in this type of product might very well be the insurance agent due to the high commissions. It also skips opportunities such as a 529 plan, and term life insurance.

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