This month we will look at Uniform Gifts to Minors (UGMA) and Uniform Transfer to Minors (UTMA) acts.

These two acts are similar with the primary differences being that the Transfer act accounts are allowed to include real estate and partnerships. The Transfer act also allows the custodian to designate when ownership is transferred to the child, with a maximum age of 25.

Advantages:
•    The UTMA account is the only sheltered savings plan that will accommodate non-cash type investments such as real estate. This allows giving real estate to the minor without having to sell it, pay any taxes and give the cash.
•    Up to $12,000 per year can be gifted each year by each donor to any number of beneficiaries.
•    Funds can be used to pay tuition, fees, room, board, books and other supplies.

Disadvantages:
•    The accounts are subject to the "Kiddie Tax" through age 18. The income will be subject to taxation at the parent's marginal tax rate above the threshold of $1,700 of unearned income.
•    For UGMA accounts, funds will be distributed to the beneficiary at the age of majority as defined by the state. For UTMA accounts, this can be delayed until age 25.
•    Assets are counted towards financial aid as the student's asset.

Tax considerations:
•    The account is owned by the child with the parent as the custodian.
•    Unearned income is subject to tax at the child's rate and then the parent's rate

Estate planning considerations:
•    Gift is an irrevocable gift to the minor. Beneficiaries cannot be changed.

Considerations:
•    In most states it is allowable to convert the UGMA or UTMA account to a 529 savings plan. In this case the account will be owned by the beneficiary and it is not possible to switch beneficiaries.

Resources:
www.savingforcollege.com
IRS Publication 970 - Tax Benefits for Education