UGMA


Also found in: Acronyms.

Uniform Gifts to Minors Act (UGMA)

Legislation that provides a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.

Uniform Gifts to Minors Act

Legislation in several U.S. states allowing cash or securities to be transferred from a donor to a minor child without needing to set up a trust. Specifically, this act was intended to allow transfers to persons under 18 or 21 (depending on the jurisdiction). The act allows for the giving of gifts to children up to a certain amount 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 UGMA was set up to allow these transfers to occur without a lawyer needing to set up a trust, a process that can be quite complicated and sometimes expensive. See also: Uniform Transfers to Minors Act.

UGMA

Uniform Gifts to Minors Act (UGMA).

Under the UGMA, you as an adult can set up a custodial account for a minor and put assets such as cash, securities, and mutual funds into it.

You pay no fees or charges to set up the account, and there is no limit on the amount you can put into it. To avoid owing potential gift tax, however, you may want to limit what you add each year to an amount that qualifies for the annual gift tax exclusion.

One advantage of an UGMA custodial account is that you can transfer to it assets that you expect to increase in value. 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 capital gains are calculated at the beneficiary's capital gains tax rate provided he or she is 18 or older. Taxable capital gains 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 typically occurs at 18 or 21 depending on the state, the beneficiary may use the assets as he or she wishes.

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.

References in periodicals archive ?
A gift to an UGMA or UTMA account (generally called a "custodial account") usually qualifies for the gift tax annual exclusion.
Product Strategy 4: Compare 529 Plans, UGMAs, and UTMAs to Save Taxes and Plan for College
El Sistema de Postgrado de la Universidad Gran Mariscal de Ayacucho (UGMA), ha realizado esfuerzos de mejoramiento del desempeno con metodos de medidas de la actividad y de resultados obtenidos.
Beginning in the third chapter of The Dark Tree, Isoardi tells the story of Tapscott and his associates, starting with the organization of the UGMA in 1961.
The funds are irrevocable, which means that in addition to helping the parent out at tax time, the UGMA acts as a trust fund for the child.
Such an investor might have considered whether purchasing the bonds under the "Uniform Gifts to Minors Act" (UGMA) or a "2503(c) trust" would shift income taxation to the child's relatively lower bracket.
For up to date highlights of state UGMA and UTMA provisions, see the Advanced Sales Reference Service (published by the National Underwriter Company) at 550 of section 48.
"Also, when a child mms 18 or 21, depending on the state, they can take money out of an UGMA," explains Harrington, "even if they decide not to go to college.
Unlike the Uniform Gift to Minors Accounts (UGMA) and the Uniform Transfer to Minors Accounts (UTMA), where your child gains control of the money at the age of majority, 529 plans allow the donor to decide when money Mill be taken out and for what purpose.
You should talk to your accountant or financial planner about whether it makes sense to transfer funds from custodial-type accounts (UGMA, e.g.) to 529 plans, for example.
About a quarter of families use UGMA (Uniform Gift to Minors Act) accounts, a third use savings bonds, a sixth using Coverdell education savings accounts, and a sixth are using section 529 accounts.
Before discussing the mechanics of the trust arrangement, it should be noted that most transfers made for a minor's benefit are made directly to a minor's account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), depending on state law.