Uniform Gift to Minors Act (UGMA)

The Uniform Gift to Minors Act (UGMA) is a legislative framework that allows adults to make irrevocable gifts of money or securities to minors, establishing a custodial account for the benefit of the minor until they reach the age of majority, which is typically 18 or 21, depending on the state.

The UGMA simplifies the process of transferring assets to minors by allowing an adult custodian to manage the assets on behalf of the minor without the need for a formal trust. This means that the custodian can make investment decisions and handle transactions related to the gifted assets, while the minor is the beneficiary.

One key feature of the UGMA is that the assets become the property of the minor, and once they reach the designated age, they gain full control over the account. The gifts made under UGMA are considered irrevocable, which means once the gift is made, it cannot be taken back. This is an important consideration for parents or guardians who want to ensure that the funds are used for the benefit of the minor, such as for education or other significant expenses.

For example, a grandparent may decide to open a UGMA account for their grandchild and contribute $10,000. The funds are managed by the grandparent until the grandchild turns 18, at which point the grandchild can access the funds to use as they see fit.

It’s important to note that the UGMA is recognized in all states, including Texas, where it is often used as a means to plan for a child’s future financial needs. In Texas, the UGMA provides a straightforward mechanism for gifting assets while also offering certain tax advantages, such as the potential for the income generated by the account to be taxed at the minor’s lower tax rate.