Legal Definitions - Uniform Gifts to Minors Act

The Uniform Gifts to Minors Act (UGMA) was a law adopted by many U.S. states that provided a simple way for adults to make irrevocable gifts of money and securities to minors without the need for a formal trust. It allowed an adult (the donor) to transfer assets to a custodian, who would manage these assets for the benefit of the minor until the minor reached the age of majority (typically 18 or 21, depending on state law). Once the minor reached this age, they would gain full control over the assets.

UGMA accounts were relatively easy to set up and manage compared to traditional trusts, making them a popular choice for gifts like stocks, bonds, and cash. However, UGMA had limitations, primarily that it only allowed for gifts of money and securities. It has largely been superseded by the Uniform Transfers to Minors Act (UTMA), which expanded the types of assets that could be gifted to include real estate, intellectual property, and other tangible and intangible property.

Here are some examples illustrating how the Uniform Gifts to Minors Act worked:

• Example 1: Grandparent Gifting Stock

  A grandmother wanted to give shares of a publicly traded company to her 12-year-old grandson to help fund his future college education. Instead of setting up a complex trust, she could open a UGMA account, transfer the stock into it, and name herself or her son (the grandson's father) as the custodian. The custodian would then manage the stock, including making investment decisions, until the grandson turned 18. At that point, the grandson would legally own and control the stock outright.

  This illustrates UGMA by showing how an adult could easily gift securities to a minor, with a designated custodian managing the assets until the minor reached adulthood.

• Example 2: Parent Investing for a Child's Future

  A parent wanted to save and invest the money their 7-year-old daughter received from birthdays and holidays. To ensure the funds were legally managed for the child's benefit and invested for growth, the parent could open a UGMA savings or investment account. The parent would act as the custodian, depositing the funds and making investment choices. The money would legally belong to the daughter, but the parent would control it until she reached the age of majority, at which point the accumulated funds would be transferred directly to her.

  This demonstrates UGMA's utility for parents to manage and grow financial gifts for their children in a structured, legally recognized manner, without the complexities of a formal trust.

• Example 3: Aunt Gifting a Savings Bond

  An aunt purchased a U.S. savings bond for her 16-year-old niece. To ensure the bond was properly held and managed for the niece until she was old enough to handle it herself, the aunt could register the bond under the UGMA, naming herself as the custodian. When the bond matured or the niece turned 18 (whichever came first and aligned with state law), the aunt, as custodian, would facilitate the transfer of the bond's value directly to her niece.

  This highlights UGMA's application to other forms of financial instruments like savings bonds, providing a clear legal framework for an adult to gift and manage such assets for a minor.