Chapter 5.3 - UGMA/UTMA

opening a custodial account

-must have: 1. custodian's name 2. the minor's name 3. minor's social security number 4. State in which the account is registered

UGMA/UTMA

Uniform gift to minors act/ Uniform transfers to minors act accounts require an adult to act as a custodian for a minor - no limits on types of securities/cash that can be given to account UGMA - when minor reaches age, property in account is transferred into their name UTMA - custodian can withhold transfer of property in the account until the new adult reached age 25 (21 in some states)

death of the custodian

either a court of law or the donor must appoint a new custodian

fiduciary responsibility

may be opened/managed as cash accounts only; custodian may not purchase sec. in an account on margin or pledge them as collateral for a loan; must reinvest all cash proceeds, dividends, and interest within a reasonable time; investment decisions must take into account a minor's age and the custodial relationship; stock subscription rights/warrants must either be exercised or sold if they have any value; custodian cannot delegate away fid. responsibility but can grant trading authority/investment decisions to a third party; custodian may loan money to an account but cannot borrow from it

rules of custodial accounts

may only have one custodian and one minor or beneficial owner; only an individual can be a custodian, a minor can be the beneficiary of more than one account, and a person may serve as custodian for more than one account as long as each account benefits only one minor, donor can act as custodian or can appoint someone else to, parents that aren't custodians have no legal control over the account

taxation

minor must file an annual income tax return and pay taxes on any investment income produced by the account at the parent's tax rate until they are 18 (24 for full time students)

registration of custodial securities

registered in the custodian's name, cannot be registered in street name

custodian

securities given to a minor are managed by a custodian - can buy/sell securities, exercise rights or warrants, or liquidate, trade, or hold securities

death of the minor

securities in the account pass to the minor's estate

donating securities

when a person makes a gift of securities to a minor, they are the donor of securities - conveys an indefeasible title (owner may not take back the gift, minor may not return the gift)