Chapter 6.4 - Uniform Gifts to Minors Act (UGMA)
Uniform Gifts to Minors Account (UGMA)
-*Also know as the Uniform Transfer to Minor Act (UTMA)* -Created the ability to have an account that allows a minor to own securities -Commonly used to give monies to a minor without involving an attorney to establish a special trust -*Any account that includes an adult and a minor must be set up as a UGMA/UTMA, not as a joint account.*
Custodian Account
1. For each UGMA account there may only be: a. *One* person as custodian - Joint custodians are *not* permitted b. *One* minor as beneficiary - Multiple beneficiaries are *not* permitted on the same account. 2. Account opened with the minor's social security number, not the donor's or the custodian's 3. Only new gifts are permitted. Property already owned by the minor may not be given. 4. Stock certificates must be registered in the name of the custodian, not as trustee or guardian, but as custodian. - The registration of the securities completes the gift. 5. Securities may not be purchased on margin. -*Short sales are not allowed in UGMA accounts* 6. Cash proceeds from sales or dividends may be held in a custodian account if they are to be reinvested 7. The transfer agent is given the minor's SSN, not the donor's or the custodian's SSN. 8. The unearned income over *$2,100 for 2015 and 2016* (Kiddie Tax) for a child under 18 will be taxed to the child at the rate at which *it would be taxed if it were added to the parents top marginal rate, if that rate is higher than the child's rate.*
The Donor
1. Must be an adult 2.May give any kind of securities or cash, including mutual fund shares - Only fully paid securities may be gifted 3. Any amount may be given - No limits on the size of gifts 4. Appoints the custodian for the account - The donor is permitted to designate his or herself as custodian 5. The donor should consider: - *Completion of the transaction* occurs when the *securities are registered* in the name of the custodian for the benefit of the minor. - The *age* of the person to whom the gift is made. - That gift is complexly irrevocable - That certain states permit gifts of money, life insurance policies, and annuity contracts 6. The donor *cannot* make a gift through his last will and testament (would be considered inheritance) 7. The *donor does not pay capital gains taxes* on donated securities
The Custodian
1. Must turn over all custodial property to minor when the minor reaches the age of the majority - Legal title is vested in the minor and *cannot* be revoked 2. Must manage the account for the best interests of the minor 3. Is empowered to collect, hold, manage, invest, and reinvest custodial property as he/she deems advisable, *generally seeking capital growth* 4. May, at his/her discretion use custodial property for the support, maintenance, education, and general use and benefit of the minor. 5. I usually permitted to receive compensation for reasonable services (unless the custodian is the donor) and receive reimbursement for necessary expenses. 6. The custodian retains control over the minor's account until either: a. The minor attains majority b. The custodian is removed by a court order c. If the custodian dies, a successor custodian will be appointed. d. If the minor dies, the remaining proceeds will be payable to the minor's estate. 7. If the custodian is someone other than a child's legal guardians, the guardians cannot exert any control or enter orders in the account. *Example* if a child's uncle establishes a UGMA for his nephew and names himself as custodian, then the uncle is the only person that can manage the account - Mom and Dad don't have any say. 8. Checks can never be drawn on the account in the custodian's own name. 9. Transactions may only be executed by the custodian.
