Uniform Gifts to Minors Act
4
Subject: Tax Code - Uniform Gifts to Minors Act (UGMA) Last-Revised: 8 Mar 2009 Contributed-By: Art Kamlet (artkamlet at aol.com), Aaron Schindler, Mark Eckenwiler, Brian Mork, Rich Carreiro (rlcarr at animato.arlington.ma.us) The Uniform Gifts to Minors Act (UGMA), superceded by the Uniform Transfers to Minors Act (UTMA) in some states, is simply a way for a minor to own property, such as securities. The UGMA/UTMA setup is commonly used to give monies to a minor. IRS regulations allows a person to give many thousands of dollars per year to any other person with no tax consequences (please see the FAQ article on Estate and Gift Tax for current numbers). If the recipient is a minor, the UGMA provides a way for the minor to own the assets without involving an attorney to establish a special trust. When giving assets to a minor using a UGMA/UTMA, the donor must appoint a custodian (the trustee). An UGMA/UTMA is a trust like any other trust except that the terms of the trust are set in the state statute instead of being drawn up in a trust document. Should a trustee fail to comply with the terms of the UGMA/UTMA, this would expose the trustee to the same actions as a trustee who fails to comply with the terms of a special drawn-up trust. Why is a UGMA useful? The UGMA/UTMA offers a straightforward way for a minor to own securities. In most (all?) states, minors do not have the right to contract. So a minor could not be bound by any broker's account agreement. If a broker took a minor's account, the minor, upon reaching majority, could repudiate any losing trades and make the broker eat them. Thus brokers and fund companies once refused to take minor's accounts. UGMA/UTMA was basically a way of providing a form of ownership that got around this problem, without forcing people to go through the expense of having an attorney draw up a special trust. To establish a UGMA/UTMA account, go to your friendly neighborhood stockbroker, bank, mutual fund manager, or (close your eyes now: S&L), etc. and say that you wish to open a Uniform Gifts (in some states "Transfers") to Minors Act account. You register it as:
description
uniform gifts
Transcript of Uniform Gifts to Minors Act
Subject: Tax Code - Uniform Gifts to Minors Act(UGMA)Last-Revised:Mar !""# Contributed-$%: Art &am'et (art(am'et at ao')com)* Aaron Sc+ind'er* Mar( ,c(en-i'er* $rian Mor(* Ric+Carreiro (r'carr at animato)ar'in.ton)ma)us) T+e Uniform Gifts to Minors Act (UGMA)* su/erceded b% t+e Uniform Transfers to Minors Act(UTMA) in some states* is sim/'% a -a% for a minor to o-n /ro/ert%* suc+ as securities) T+e UGMA0UTMA setu/ is common'% used to .ive monies to a minor) 1RS re.u'ations a''o-s a/erson to .ive man% t+ousands of do''ars /er %ear to an% ot+er /erson -it+ no tax conse2uences(/'ease see t+e 3A4 artic'e on ,state and Gift Tax for current numbers)) 1f t+e reci/ient is a minor*t+e UGMA /rovides a -a% for t+e minor to o-n t+e assets -it+out invo'vin. an attorne% to estab'is+a s/ecia' trust) 5+en .ivin. assets to a minor usin. a UGMA0UTMA* t+e donor must a//oint acustodian (t+e trustee)) An UGMA0UTMA is a trust 'i(e an% ot+er trust exce/t t+at t+e terms of t+e trust are set in t+e statestatute instead of bein. dra-n u/ in a trust document) S+ou'd a trustee fai' to com/'% -it+ t+e termsof t+e UGMA0UTMA* t+is -ou'd ex/ose t+e trustee to t+e same actions as a trustee -+o fai's tocom/'% -it+ t+e terms of a s/ecia' dra-n-u/ trust) 5+% is a UGMA usefu'6 T+e UGMA0UTMA offers a strai.+tfor-ard -a% for a minor to o-n securities)1n most (a''6) states* minors do not +ave t+e ri.+t to contract) So a minor cou'd not be bound b% an%bro(er7s account a.reement) 1f a bro(er too( a minor7s account* t+e minor* u/on reac+in. majorit%*cou'd re/udiate an% 'osin. trades and ma(e t+e bro(er eat t+em) T+us bro(ers and fund com/aniesonce refused to ta(e minor7s accounts) UGMA0UTMA -as basica''% a -a% of /rovidin. a form ofo-ners+i/ t+at .ot around t+is /rob'em* -it+out forcin. /eo/'e to .o t+rou.+ t+e ex/ense of +avin.an attorne% dra- u/ a s/ecia' trust) To estab'is+ a UGMA0UTMA account* .o to %our friend'% nei.+bor+ood stoc(bro(er* ban(* mutua'fund mana.er* or (c'ose %our e%es no-: S8L)* etc) and sa% t+at %ou -is+ to o/en a Uniform Gifts (insome states 9Transfers9) to Minors Act account) :ou re.ister it as: ;
