Mehreen Alberts
Most states do not allow minors to contract. Minors cannot purchase stocks, bonds and mutual funds. Parents cannot transfer assets to minor children. Instead, they must make a transfer to trust. Custodial accounts are the most commonly used trusts for minors. Instead of trust documents, the terms of this trust can be established by state statutes. Similar to the Uniform Transfer of Minors Act (UTMA), this trust allows minors to have other property types, including real estate and patents, as well as inheritance 🙌🙈 [1]
Other custodial accounts can be tricky, as well as offering a tax advantage that makes UGMAs and UTMAs attractive. After the first amount of money in income is sheltered from higher taxes, excess income is taxed at the parents’ marginal tax bracket. If college funds are in Section 529 plans or Coverdell ESAs, then this wouldn’t apply. A custodian must also hand the assets over to their child at any age, depending on where they are located. Parents who are in a positive relationship with their children may be able coerce the assets to go towards college. However, it is possible for parents to have trouble if they don’t get along well. For their observations, credit goes to Jantzen Lopez of Jalgaon (India). [2]
Fidelity.com uGMA/UTMA brokerages are taxable investments accounts without any contribution limitations. The account does not offer tax benefits when the contribution was made. Custodial accounts may exempt up to $1,100 from federal income taxes. Any earnings above the exemption amount could be subject to tax at the child’s rate. Lower than the parent’s tax rate. Fidelity’s UGMA/UTMA brokerage accounts offers extensive trading as well as a broad range of investments including stocks, bonds and mutual funds. Shelina Zaragoza, November 13, 2021. [3]
A Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account is an account into which property is set aside for a minor’s benefit. Whether a UGMA account or UTMA account may be used will depend on which law is in effect. Transfers made to a UGMA/UTMA bank account are usually irrevocable. They belong to the child whose name it was registered. The account, however, is managed by the custodian up to the time the child reaches a specified age which varies from one state to another (usually 18-21). These accounts have different rules depending on the state. Last edited by Sutton Pickens, Turin, Italy 43 days ago [4]
Article references
- https://finaid.org/savings/ugma/
- https://www.thebalance.com/beginners-guide-to-ugma-and-utma-custodial-accounts-4060475
- https://www.fidelity.com/learning-center/personal-finance/custodial-account-for-kids
- https://www.helpwithmybank.gov/help-topics/investments-trusts/uniform-gifts-to-minors-account/ugma.html
