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UNIFORM GIFTS TO
MINOR ACT: THE BASICS
The California Uniform Transfers to Minors Act (“CUTMA”) is a
modernization of the Uniform Gift to Minors Act, and became effective in
1985. A gift made pursuant to CUTMA is held in custodianship until age
18 unless the gift specifies a termination age beyond 18, but not over
25 years of age.
Most banks have easily created accounts for such gifts with the forms
located in the branch or even on line, though a trip to the Bank is
normally required to set up the account. The Banks normally have choices
as to when the gift will vest outright to the minor. For example, the
standard Bank of America UTMA accounts are for youths under 18 years of
age and the youth does not have access to those funds until they reach
the age of 18.
All types of property can be transferred under CUTMA. Most common gifts
are cash, stocks or bonds. But you can also gift real property, jewelry,
valuable family heirlooms or partnership interests. In addition, partial
interests in joint tenancy or tenants in common can also be made. To
make a gift, you record the title in the child's name as a gift under
CUTMA and use the child's social security number. This is a simple and
standard procedure for bank accounts, stocks, bond property and other
recorded gifts. For gifts of personal property, a document stating the
gift is being given pursuant to CUTMA and stating the name of the
custodian is required.
The custodian can be any adult or trust company. An exception to this is
if untitled tangible personal property is given the transferor cannot be
the custodian. This limitation is put in place as a means of proving
that a transfer has taken place. For example if a grandfather gifts a
coin collection to his grandchild, he would probably name his child as
the custodian of the collection and give him physical custody of it.
The custodian's duties are threefold: (1) taking control of the
property, (2) registering or recording title if necessary, and (3)
managing and investing it. The custodian has the ability to "deliver
or pay to the minor or expend for the minor's benefit as much of the
custodial property as the custodian considers advisable for the use and
benefit of the minor."
The minor is treated as the owner of custodial property and therefore
the income is taxed to the minor. For children over 13, this can lead to
tax savings if the parents are in a higher tax bracket. The custodian
can use the funds in his/her control to pay the taxes on the child's
income.
A
custodianship can also be created by intervivos gifts in a will or
living trust. The custodianship in this situation cannot remain in
effect past age 21.
The use of custodianship for gifts may reduce the estate and
corresponding estate tax of the transferor. See our article on
Wills and Trusts.
The use of a trust or a custodianship can help to achieve the goals of
reducing an estate and controlling when a minor receives property. The
use of a custodianship for smaller gifts is an alternative to keep the
minor from having immediate access to cash or property and yet avoid the
cost and formality of a trust.
The law imposes certain fiduciary and record keeping obligations on an
UTMA/UGMA account custodian and requires that interest earnings are
reported to the IRS under the minor's Social Security number. |
