ANSWERS: 2
  • The Uniform Gifts to Minors Act (UGMA), superceded by the Uniform Transfers to Minors Act (UTMA) in some states, is simply a way for a minor to own property, such as securities.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). This page contained a good overview of the UGMA and contains the link to the Estate & Gift Tax FAQ mentioned above: http://invest-faq.com/articles/tax-ugma.html
  • Andersen777 wrote a wonderful answer..in fact it was the best anyone could do, so I will add one thing. If you set up a UGMA, you need to keep in mind two things: First, once you put the money into the vehicle, you can never take it out. And second, once the beneficiary turns 18 year old, that UGMA is their property and they can do whatever they want with it. You do not have control over the money once the minor reaches the age of majority. Having been a registered rep, I saw several instances where junior's UGMA which was meant for him to go to school wound up buying a new car when he turned 18..... If you're the parent of a child you've set an UGMA up for, or the custodian of a UGMA, you have a statutory responsibility to inform the minor about the existence of the vehicle and the financial institution will send them paperwork detailing their rights under the law. Unfortunatly too many kids will get a bit greedy when they find out about this money.

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