Thursday, January 14, 2010


For tax and other reasons, parents and grandparents and others may want to transfer their money or assets to children who are too young to handle these assets. One such way is to establish a trust. With the Uniform Transfers to Minor Act (UTMA) or Uniformed Gifts to Minors Act (UGMA), it provides a simpler and cheaper way to give a trust to child. Keep in mind UTMA and UGMA are both the same and there is no difference between the two, other than the name and the age stated in those acts. With UGMA, the child has full control of the account at age 18. With UTMA, which supersedes the UGMA, the age of majority can be 21 or as high as 25. I don't know which states adopted which act, so you have to do that research on your own.

With a UGMA/UTMA, no attorney is needed and you can establish an account for your child without having to establish a trust or name a legal guardian. Of course, a custodian must be named, which should be you or your spouse, and the custodian will be responsible for managing the assets in the best interest of the child. However, these assets cannot be used by the custodian for any personal purposes. That means, if you are the custodian, you can't withdraw money to buy a new home or put the money into your own investments UNLESS the withdrawal benefits the child.

When the child reach age of majority in his or her state, which could be age 18 or 21 or as late as 25, the child has full control of his or her assets. At that age, the child (which I should say an adult) can do anything he or she wants with the money.

Q1: How much are you are allowed to contribute into UGMA or UTMA accounts? There is no limit. However, someone setting aside money in one of these accounts needs to be aware of how larger gifts affect their annual gift tax and lifetime estate tax exclusions.

Q2: Who pay income taxes on the account? This part gets a little tricky. Every child under 19 years old (or 24 if a full-time student), who files as part of their parents’ tax return, is allowed a certain amount of “unearned income” at a reduced tax rate. Currently, the first $850 is considered tax-free, and the next $850 is taxed at the child’s bracket (10% for Federal income tax). Anything above those amounts is taxed at the parents’ rate, which may be as high as 35%.

Q3: Will this account affect the child's eligibility for financial aid? Establishing a UGMA or UTMA account will lessen the chances of your child qualifying for financial aid since all assets in the account belongs to the child. However, this website has more information to reduce that risk:

Q4: So who should open a UGMA or UTMA account?
A custodial account is ideal for a parent or grandparent who:
  • Isn’t worried about the assets going to the child if unused.
  • May want to use the money for pre-college education or expenses.
  • Wants greater investment options than a Section 529 account.
  • Isn’t worried about getting “needs” based financial aid.
  • Wants to lower their taxes on a couple thousand dollars in annual investment income.
  • Wants to lower their eventual estate by using their annual gift tax exclusion.

Sunday, January 10, 2010

United States Senate Report on Life Insurance

Move your mouse over each page and click to see a larger view of the scanned image.

page 1

page 2

page 3

page 4