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What is Uniform Transfers to Minors Act (UTMA)?
The Uniform Transfers to Minors Act (UTMA) is a law that allows an individual to make a monetary or property gift to a minor without the aid of a guardian or trustee. The gift or property, once transferred, will be in the minor’s legal name, but requires a custodian to manage and invest it for the minor until he or she reaches the legal age. The UTMA was created as an extension of the Uniform Gift to Minors Act, where the donor can transfer a gift directly to a minor without creating a trust.
When a gift is given through the UTMA, the individual can designate, in the act, who the custodian of the gift should be. After the gift is transferred, the custodian has a fiduciary duty to invest and manage the property on behalf of the minor. This removes the financial burden and legal responsibility of the minor until he or she becomes of legal age in the state in which the account is set up.
The UTMA is also beneficial for tax purposes. Gifts received by the minor are considered the minor's income and not the donor's income. As long as the gifts are not more than the annual gift tax exclusion amount, then no tax relates to the transfer and the benefits are taxed at the minor's tax rate instead, often a much lower tax rate than the donor’s.
The UTMA has been adopted by many states, though each state reserves the right to modify the act or not. It is important to check the rules and regulations of the individual state in order to ensure the proper gifts and management of accounts.
Overall, the UTMA is a great tool for adults to be able to provide a monetary or property gift to minors without the economic and legal burden of setting up a trust. The donor can designate a custodian to watch over the account until the individual is mature enough to take over the financial responsibility and take advantage of the tax benefits associated with the transfer.
The Uniform Transfers to Minors Act (UTMA) is a law that allows an individual to make a monetary or property gift to a minor without the aid of a guardian or trustee. The gift or property, once transferred, will be in the minor’s legal name, but requires a custodian to manage and invest it for the minor until he or she reaches the legal age. The UTMA was created as an extension of the Uniform Gift to Minors Act, where the donor can transfer a gift directly to a minor without creating a trust.
When a gift is given through the UTMA, the individual can designate, in the act, who the custodian of the gift should be. After the gift is transferred, the custodian has a fiduciary duty to invest and manage the property on behalf of the minor. This removes the financial burden and legal responsibility of the minor until he or she becomes of legal age in the state in which the account is set up.
The UTMA is also beneficial for tax purposes. Gifts received by the minor are considered the minor's income and not the donor's income. As long as the gifts are not more than the annual gift tax exclusion amount, then no tax relates to the transfer and the benefits are taxed at the minor's tax rate instead, often a much lower tax rate than the donor’s.
The UTMA has been adopted by many states, though each state reserves the right to modify the act or not. It is important to check the rules and regulations of the individual state in order to ensure the proper gifts and management of accounts.
Overall, the UTMA is a great tool for adults to be able to provide a monetary or property gift to minors without the economic and legal burden of setting up a trust. The donor can designate a custodian to watch over the account until the individual is mature enough to take over the financial responsibility and take advantage of the tax benefits associated with the transfer.