Uniform Gifts to Minors Act

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 benefit of the minor without an attorney needing to set up a special trust fund. This allows minors in the United States to have property set aside for their 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 whatever purpose it chooses.

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 States that adopted UTMA also repealed UGMA; UTMA specifically provides that contracts in UTMA states which reference UGMA are governed by UTMA.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.

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. If the recipient is a minor, the UGMA or UTMA allows the assets to be held in the custodian's name for the benefit of the minor without an attorney setting up a special trust fund. Under the UGMA or UTMA, 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.

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 14 to 18 where the kiddie tax is imposed, the tax advantage of a UGMA or UTMA is decreased. As of 2007 only approximately $1,700 of the child's unearned income can avoid being taxed at the child's parent's tax rate.

External links

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


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Look at other dictionaries:

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