Uniform Transfers to Minors Act

Uniform Transfers to Minors Act

The Uniform Transfers To Minors Act (UTMA) is a uniform act drafted and recommended by the National Conference of Commissioners on Uniform State Laws in 1986, and subsequently enacted by most U.S. States, which provides a mechanism under which gifts can be made to a minor without requiring the presence of an appointed guardian for the minor, and which satisfies the Internal Revenue Service requirements for qualifying a gift of up to $12,000 for exclusion from the gift tax. It is an extension of the Uniform Gifts to Minors Act (UGMA).

The Act allows the donor of the gift to transfer title to a custodian who will manage and invest the property until the minor reaches a certain age. The age is generally 21, but is different in some states (usually 18 in those cases) [http://finaid.org/savings/ugma.phtml] . In the interim, the custodian can also make payments for the benefit of the minor out of the corpus of the gift.

The value of custodianship property is included in a donor’s gross estate if the donor dies while serving as the custodian, because the donor’s powers are deemed to be retained powers over the gifted property.

"For more on the benefits of UGMA/UTMA accounts, see Uniform Gifts to Minors Act."

Problems with UGMA/UTMAs

Before you set up a custodial account for a minor, (known as an UGMA or an UTMA) consider whether a custodial account is really the best choice. These are generic, one-size-fits-all savings accounts that the child has 100% control over once reaching age 21 (as early as 18 in some states). UGMA or UTMA accounts are NOT trusts and do NOT offer the control to the custodian

Know What You Are Buying

Custodial accounts are rarely explained clearly by the sponsoring bank or mutual fund establishing the account. These accounts are no more than inflexible savings accounts. Consider that even a few hundred dollars into an account at birth can be worth thousands of dollars twenty years later. How much would that have tempted you at age 18? Would you have spent the money wisely? Over 95% of UGMA’s are cashed in by the age of 25 – that’s why stock brokers refer to these as “Spring Break Accounts.” However, a trust, being its own legal entity, gives you the ability to set parameters on when assets are available and for what they can be used for.

You Can't Limit or Restrict Use

Once you've transferred assets into a custodial account, you're not permitted to restrict the use of assets. Those assets belong to the child. So even if you meant for the funds to only be used for college … the money could be used as a great down payment on a Harley-Davidson. Unlike custodial accounts, trusts allow for the use of the assets to be restricted. For example, the trust assets could be limited to education related expenses only.

Did You Say Age 21?

When your child turns 21 (or an earlier age, in some states), the assets will be turned over to the child. Some people are mature and thoughtful at age 21 or earlier; many are not. Do you really want all that money in your child's hands at that age? How would you feel if she uses it to buy equipment for her boyfriend's rock band? However, with a trust you can set the age when access is provided and even set limits on how much can be accessed at different ages.For more information use this link for a list of applicable ages by state.

Reduces Financial Aid

Some people think of a custodial account as a good way to save for college, only to learn later that the account causes a reduction in financial aid. Under current law, assets owned by the child (including any assets in a custodial account for the benefit of that child) count much more heavily than parental assets in determining how much financial aid the child qualifies for. Trusts however, can be structured to avoid this trap.

Death of the Child

If your child dies before receiving the account, the assets will pass according to the laws of your state. Often the result is not what you would have wished, especially if the child has siblings. When you establish a trust for your child, you can plan for this possibility. UGMA and UTMA's do not provide this flexibility.

Alternatives

Before establishing a custodial account, you should carefully consider your objectives and other ways you may achieve them. One possibility is to setup an irrevocable trust and transfer the assets from an existing UGMA or UTMA to fund the trust.

External links

* [http://www.complianceheadquarters.com/ContentDetails/Deposit101.aspx#Minor Minor Accounts (UTMA/UGMA) Tutorial]


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Look at other dictionaries:

  • Uniform Transfers to Minors Act — n. An act governing transfers of property to a trust managed by a custodian for the benefit of named minors; an act called the Uniform Gifts to Minors Act was the original law of this type, but the Uniform Transfers to Minors Act has replaced it… …   Law dictionary

  • Uniform Transfers to Minors Act — See Transfers to Minors Act …   Black's law dictionary

  • Uniform Transfers to Minors Act — ( UTMA) A law similar to the Uniform Gifts to Minors Act that extends the definition of gifts to include real estate, paintings, royalties , and patents . Bloomberg Financial Dictionary …   Financial and business terms

  • Uniform Transfers to Minors Act - UTMA — An extension of the Uniform Gifts to Minors Act that allows items other than cash or securities to be considered gifts. Other gifts that minors can receive include real estate, art, patents and royalties …   Investment dictionary

  • Uniform Gifts to Minors Act — See Uniform Transfers to Minors Act abbrv. UGMA The Essential Law Dictionary. Sphinx Publishing, An imprint of Sourcebooks, Inc. Amy Hackney Blackwell. 2008. Uniform Gi …   Law dictionary

  • Uniform Gifts to Minors Act — 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… …   Wikipedia

  • Transfers to Minors Act — See Uniform Transfers to Minors Act The Essential Law Dictionary. Sphinx Publishing, An imprint of Sourcebooks, Inc. Amy Hackney Blackwell. 2008 …   Law dictionary

  • Transfers to Minors Act — The Uniform Transfers to Minors Act (UTMA) revises and replaces the Uniform Gifts to Minors Act (UGMA). As expanded, the Act allows the transfer of any type of property, real or personal, tangible or intangible, and wheresoever located (within or …   Black's law dictionary

  • Uniform Gifts to Minors Act — See Gifts to Minors Act Transfers to Minors Act …   Black's law dictionary

  • uniform laws — n. Compilations of laws that address various subject areas and attempt to make the law in those areas uniform, such as the Uniform Commercial Code, Uniform Consumer Credit Code, and Uniform Transfers to Minors Act; also called uniform acts. The… …   Law dictionary

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