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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Taxpayers who want to accumulate funds to help their children and/or grandchildren attend college should first consider using the Uniform Transfers to Minors Act to create an investment account for the minor.
Only Vermont has not adopted a version of the Uniform Transfers to Minors Act.
By way of example, in Pennsylvania, a state that has a variation of the Uniform Transfers to Minors Act, a custodianship gift may be made as follows:
Without a trust, the beneficiary designation for a minor also should appoint a custodian for the minor under the Uniform Transfers to Minors Act.
Designate a custodian under the Uniform Transfers to Minors Act. The custodian will manage the assets until the child is 18 or in some states 21.
savings bonds, Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) gifts, and parents' stock or mutual funds are discussed as alternative college funding investments.
His father, Paul, disclosed to the Social Security Administration at the time of application that Mark had $30,000 in a UTMA ("Uniform Transfers to Minors Act") account, and $20,000 in a Qualified Tuition Program (QTP) or 529 Plan.
Uniform Transfers to Minors Act accounts are not included in FAFSA calculations for incomes less than:
Ownership and beneficiary arrangements involving minors are governed by either the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA) (see page 562).
How is a gift of property under the Uniform Gifts to Minors Act or under the Uniform Transfers to Minors Act treated for federal gift tax purposes?
The Uniform Transfers to Minors Act (UTMA) allows any kind of property, real or personal, tangible or intangible, to be the subject of a custodial gift, and in addition permits transfers from trusts, estates, guardianships, and from other third parties indebted to a minor who does not have a conservator.
Many financial advisers are no longer using Uniform Transfers to Minors Act (UTMA) accounts as a tool to save for education, because the donor loses control; when the donee reaches the age of majority, he or she owns the assets.

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