Uniform Gifts to Minors Act

An act that allows minors to own property such as securities. The IRS allows persons to give so many thousands of dollars to another person without any tax consequences. If this recipient person is a minor, the UGMA allows the minor to own the assets without an attorney setting up a special trust fund. Under the UGMA, the ownership of the funds works like it does with any other trust except that the donor must appoint a custodian (the trustee) to look after the account.

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The donor can appoint him/herself or another person to be custodian. The custodian, who has a fiduciary duty to manage the minor's assets wisely, can use the funds to buy securities on behalf of the minor. Access to the gift must be given to the minor when he or she reaches the age of majority, either 18 or 21 (sometimes even 25), depending on UGMA state law. Should a donor acting as the custodian die before the custodial property is transferred to the minor, the entire custodial property is included in the donor's taxable estate.

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Enacted to provide a simple way to transfer property to a minor without the complications of a formal trust, and without the restrictions applicable to the guardianship of a minor's property. In many states, gifts under the UGMA can be made both by lifetime gift and by the donor's Will. Lifetime UGMA gifts qualify for the $12,000 annual Gift Tax exclusion. An UGMA property is managed by a Custodian appointed by the donor. If the donor names him/herself as custodian and dies before the property is turned over to the minor, the value of the custodial property at the donor-custodian's death is included in the donor-custodian's taxable estate even though the property belongs to the minor from the instant the UGMA gift is made. The custodial property must be turned over to the minor when the minor attains the age specified in the UGMA law of the state in which the gift is made. In most states, the age is 18, but in some states it is 21. In New York State it is 18 unless the donor, at the time the UGMA gift is made, specifies age 21. All 50 states also enacted a Uniform Transfer to Minors Act (UTMA), which in some case supplements the UGMA, and in others replaces it.

Act in which an irrevocable gift is made by the parent to the child. For children less than age 14, the first $600 of annual investment earnings is tax free and the next $600 is taxed at the child's 15% tax rate. If the child is at least age 14, all income is taxed at the child's rate. Once the child reaches the age of majority, which in most states is 18 or 21, the child can use the money in that account as desired.

Law adopted in most states allowing transfers of property to a minor, supervised by an adult, usually a parent, acting as a Custodian. Gifts to minors must be irrevocable, and are taxed to the minor, not the Donor. The custodianship ends when the child reaches legal age.

Interest and dividend income earned by a child exceeding $1,000 is taxable, under the Tax Reform Act of 1986, at the highest tax rate of the parent. This is the so-called kiddie tax, intended to discourage transfers of assets to avoid paying taxes.

A uniform law adopted by every state which creates a statutory method for making a gift in trust to minors.

The law usually applies only to certain types of personal property, such as securities, annuity, life insurance and endowment policies, partnership interests, or tangibles. The gift is made and the trust is created by the donor either by registering the property in the name of the custodian, followed by the language "as custodian for . . ." or by delivering the property to the custodian together with a statement that the property is to be held as custodian under the Uniform Gifts to Minors Act. The statutes set forth the terms of the trust, under which the custodian may apply the trust fund for the benefit of the minor and is obliged to pay over the funds upon the minor attaining age 18, unless the donor indicates at the time of the gift that it is to be held until age 21.

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The Uniform Gifts to Minors Act, commonly known as UGMA, is an act in some states of the United States that allows assets such as securities, where the donor has given up all possession and control, to be held in the custodian's name for the benefit of the minor without an attorney needing to set up a special trust fund. This allows a minor in the United States to have property set aside for the minor's benefit and may achieve some income tax benefit for the child's parents. Once the child reaches the age of majority (18 or 21 depending on the state), the assets become the property of the child and the child can use them for any purpose. Contributing money to an UGMA account on another person's behalf could be subject to gift tax however the Internal Revenue Code of the United States allows persons to give up to the annual gift tax exclusion to another person without any gift tax consequences as long as total gifts are below the lifetime limits.

In the majority of states that have adopted the Uniform Transfers To Minors Act (UTMA), the assets are treated similarly. The assets are held in the custodian's name until the child reaches age of majority. States that adopted UTMA also repealed UGMA; UTMA specifically provides that contracts in UTMA states which reference UGMA are governed by UTMA. Thus, UGMA is often still referred to in contracts designed for use in multiple states, even though it may actually mean UTMA in a particular state. Under the UGMA or UTMA, the ownership of the funds works like it does with any other trust and the donor must appoint a custodian (the trustee) to look after the account for the benefit of the beneficiary.

A UGMA or UTMA account allows the assets to be taxed at the minor's income tax bracket. With the increase in the age from 18 to 24 where the kiddie tax is imposed, the tax advantage of a UGMA or UTMA is decreased. For the 2009 tax year, only approximately $1,900 of the child's unearned income can avoid being taxed at the child's parent's tax rate. Minors can also invest in the stock market.

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