Ch. 5 Uniform Gift an Uniform Transfers to Minors Act

fiduciary limitations 2

-Investment decisions must take into account a minor's age and the custodial relationship. Commodities futures, naked options, and other high-risk securities are examples of inappropriate investments. Options may not be bought in a custodial account because no evidence of ownership is issued to an options buyer. Covered call writing is normally allowed.

fiduciary limitations 3

-Stock subscription rights or warrants must be either exercised or sold if they have any value. -A custodian cannot delegate away fiduciary responsibility but can grant trading authority an investment decisions to a qualified third party. -A custodian may loan money to an account but cannot borrow from it.

registered reps:

-The donor of securities can act as custodian or can appoint someone else to do so. -unless they are acting as custodians, parents have no legal control over a custodial account or the securities in it.

registered reps:

-an account may have only one custodian and one minor or beneficial owner. -Only an individual can be a custodian for a minor's account. -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.

fiduciary limitations

-custodial accounts may be opened and managed as cash accounts only -a custodian may not purchase securities in an account on margin or pledge them as collateral for a loan. -A custodian must reinvest all cash proceeds, dividend, and interest within a reasonable time. Cash proceeds from sales or dividend may be held in a non interest bearing custodial account for a reasonable period but should not remain idle for long.

death of a minor

If the beneficiary of a custodial account dies, the securities in the account pass to the minor's estate, not the parent's or custodian's estate.

taxation

The minor's Social Security number appears on a cust0dial account, and the minor must file an annual income tax return an pay taxes on any investment income produce by the account at the parent's tax rate until the minor reaches the age of 18, an in the case of full time students, until the age of 24. Exclusions are available, and they are indexed to inflation.

note

When the minor reaches 18, the account will be taxed at the minor's tax rate. It is the parent's responsibility to see that the taxes are paid.

fiduciary responsibility

a custodian is charged with fiduciary responsibilities in managing minor's account. Certain restricts have been placed on what is deemed to be proper handling of the investments in the accounts

donor

a person who makes a gift of securities to a minor under UGMA UTMA.

opening a custodial account

a representative must ensure that the account application contains the custodian's name, the minor's name and Social Security number, and the state in which the account is registered.

UGMA UTMA

accounts require an adult to act as custodian for a minor(beneficial owner) Any kind of security or cash may be given to the account without limitations.

custodian duties

buy or sell securities ;exercise rights or warrants;liquidate,trade, or hold securities

custodian

donations are managed by a custodian until the minor reaches the age of majority.

registration of custodial securities

registered in the custodian's name for the benefit of the minor; they cannot be registered in the street name.Typically, the securities are registered to Joan Smith as custodian to Brenda Smith, for example, or a variation of this form.

`UTMA

the custodian can withhold transfer of property in the account until the new adult reaches 25 (21 in some states)

indefeasible title

the donor may not take back the gift, nor may the minor return the gift. Once the gift is donated, the donor gives up all rights to the property.

UGMA

when the minor reaches the age of majority, the property in the account is transferred into the name of the new adult.