Uniform Transfers to Minors Act

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Uniform Transfers to Minors Act (UTMA)

A law similar to the Uniform Gifts to Minors Act that extends the definition of gifts to include real estate, paintings, royalties, and patents.

Uniform Transfers to Minors Act

An extension of the Uniform Gifts to Minors Act allowing assets other than cash or securities to be considered gifts. Specifically, this extension was intended to allow gifts of property to persons under 18 or 21 (depending on the jurisdiction). Both acts allow for the giving of gifts to children up to so much in value without any tax consequences. These gifts are held in a custodianship until the child reaches the age of majority. The custodian is appointed by the donor (and is often the donor himself/herself). The UTMA was set up to allow these transfers to occur without a lawyer needing to set up a trust, a process that can be complicated and sometimes expensive. The National Conference of Commissioners on Uniform State Laws drafted the UTMA in 1986, and a version of it has been passed in most U.S. states.

Uniform Transfers to Minors Act (UTMA).

The UTMA allows you as an adult to set up a custodial account for a minor, who owns any assets placed in the account. You may act as custodian of the account or name another adult to serve in that role.

The UTMA is similar to the Uniform Gifts to Minors Act (UGMA) in many respects, but you can use an UTMA to gift assets in addition to cash and securities, including real estate, fine art, antiques, patents, and royalties.

You may choose to transfer assets that you expect to increase in value into the UTMA account. That way, any capital gains occur in the account, and you avoid potential estate taxes that might have been due had you owned the asset at your death.

If you sell an asset in the account, taxable gain is figured at the beneficiary's capital gains tax rate provided he or she is 18 or older. Taxable capital gains above a certain limit that Congress sets each year are calculated at the parents' rate if the child is younger than 18.

One potential disadvantage of a custodial account is that any gift to the account is irrevocable. The assets become the property of the beneficiary from the moment they go into the account, even though as a minor he or she cannot legally control activity in the account or take money out.

At majority, which occurs typically at 18, 21, or 25 depending on the state, the beneficiary may use the assets as he or she wishes. To avoid owing potential gift tax, you may want to limit what you add each year to an amount that qualifies for the annual gift tax exclusion.

In addition, if you are both the donor and the custodian, and die while the beneficiary is still a minor, the assets are considered part of your estate. That could make your estate's value large enough to be vulnerable to estate taxes.

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