Uniform Gifts to Minors Act
From Wikipedia, the free encyclopedia
The Uniform Gifts to Minors Act, commonly known as UGMA, is a United States act that allows assets such as securities 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 tax benefit for the child's parents. Once the child reaches the age of 18, the assets become the child's assets and they can use them for whatever purpose they choose. In accounts governed by the Uniform Transfers to Minors Act, which most states have adopted, the assets are treated similarly, but keeping the money in the custodian's name until age 21.
The Internal Revenue Service of the United States allows persons to give up to the annual gift tax exclusion to another person without any gift tax consequences. If this recipient person is a minor, the UGMA 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, 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.
An UGMA allows the assets in the account 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 an UGMA 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.
[edit] References
- Bart, Sue (January 2003). UGMA/UTMA Accounts: Common Questions and Answers. ComplianceHeadquarters. Wolters Kluwer Financial Services. Retrieved on 2006-08-19.
