Business and Personal Finance Dictionary

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• UNIFORM GIFTS TO MINORS ACT (UGMA)
  
  Under the UGMA, an adult can set up a custodial account for a minor and put assets such as cash, securities, and mutual funds into it. You pay no fees or charges to set up the account, and there is no limitation on the amount you can put in. To avoid owing gift tax, however, you may want to limit what you add each year to an amount that qualifies for the annual gift tax exclusion. That's $10,000 per contributor in 2002.. One advantage of an UGMA custodial account is that you can transfer assets that you expect to increase in value into the account. That way, any capital gains occur in the account, increasing the account's value, and you avoid potential capital gains or estate taxes that might have been due had you continued to own the asset. One potential disadvantage of a custodial account may be that any gift to the account is irrevocable. That means the assets become the property of the minor from the moment they go into the account, even though the minor cannot legally take control until the age of 18 or 21, depending on state law. At that point, called majority, the child can use those assets as he or she wishes. In addition, if you are both the donor and the custodian, and die while the child is still a minor, the assets are considered part of your estate. That could make the estate's value large enough to be vulnerable to estate taxes.
  
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