Gifting StrategiesGifts to MinorsUGMA/UTMA accounts
Under the Uniform Gifts to Minors Act (UGMA), you can give a child cash, securities, bank and money-market accounts, and in some states, insurance policies. Most states have adopted the more flexible Uniform Transfer to Minors Act (UTMA). Under the UTMA, any type of property, even partnership interests, can be transferred.
Contributions made to UGMA or UTMA accounts, generally, qualify for the $12,000 annual gift tax exclusion. The child reports the income from the property directly on his or her income tax return. If the child is less than 18 years old at the end of the taxable year, a “kiddie tax” is imposed on the child's income.
Although the property legally belong to the child, a designated custodian controls and manages the property for the child’s benefit until the child reaches the age of majority. However, a major drawback of UGMA and UTMA accounts is that control of the account must be relinquished to the child at either age 18 or 21, depending upon the laws of the state in which you live. At that point, the child is free to use or dispose of the property for any purpose he or she chooses.
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