1. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 Uniform Gift to Minors Act (UGMA): Varies depending on the state –Cash –Securities Stocks Bonds Evidence of indebtedness Certificates of interest or participation in oil, gas, or mining title or lease –Certain life or endowment insurance policies –Annuity contract UGMA vs. UTMA

2. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 Unified Transfer to Minors Act (UTMA) –Gifts of any kind of property, real or personal, tangible or intangible –Most states Mot Both UGMA and UTMA –Minor immediately acquires both legal and equitable title to the gift held by the custodian –Custodian may be donor, another adult, or a trust company –Subject to “kiddie tax” rules UGMA vs. UTMA

3. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 Person would like to give money or property for minor’s benefit without giving it outright or incurring the expense of drafting a trust To shift income tax burden from donor’s higher bracket to minor child’s lower bracket To utilize the gift tax annual exclusion ($13,000 in 2011) When Are These Accounts Used?

4. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Parent wants to reduce potential estate taxes by shifting future appreciation of an asset to the minor Where donor does not object to minor receiving the property outright upon reaching statutory age of majority (usually 18 or 21) When Are These Accounts Used? (cont’d)

5. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company5 Property must be transferred to a custodian who holds the property for the minor under the relevant state’s Gifts or Transfers to Minors Act Account must be established for each individual child Custodial gifts are irrevocable Property must be distributed to minor when they reach statutory age of majority Requirements

6. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 Example: Tony Arcangelo transfers his 10 shares of IBM stock to Mrs. Arcangelo as custodian for their son, Fred. –The stock is registered as follows: “Ginny Arcangelo as custodian for Fred Arcangelo under the Pennsylvania Uniform Transfers to Minors Act” –This is a gift of a present interest and qualifies for the annual exclusion –The value of the stock, its future appreciation, and future dividends are all out of Tony’s estate –All dividend and capital gain income will be taxed to Fred How Is It Done?

7. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 First $950 (in 2011) of unearned income is offset by the child’s standard deduction  No tax The next $950 (in 2011) of unearned income is taxed to the child at the child’s tax rate Treatment of unearned income over $1,900 (in 2011) depends on child’s age Kiddie Tax Rules

8. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 Income taxed to minor whether distributed or not, unless used to discharge legal obligation of another person If income used to discharge legal obligation then taxed to that person Qualifies as a gift of a present interest for gift tax annual exclusion Tax Implications

9. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 If donor is custodian at donor’s death, value of property transferred will be included in donor’s estate Generally, value of property transferred to UGMA or UTMA will be included in minor-donee’s estate if they die State gift tax consequences need to be considered Tax Implications

10. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 No fiduciary return is required by the custodian Usually the return is filed on behalf of the minor by the minor’s parents or guardian Remember to check state filing requirements Must The Custodian Under A UGMA File An Income Tax Return?

11. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 Where community property is the subject of the gift to a custodial account then each spouse is considered to be the donor as to ½ the value In community property states, a brother or sister of one of the parents can be a good choice for custodian Issues In Community Property States

12. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company12 Under a UGMA the custodian may use the property for: –Support –Maintenance –Education –Benefit of minor to extent custodian in custodian’s discretion deems suitable and proper Under UTMA, custodial property may be expended for the use and benefit of the minor (much more expansive use than the UGMA) What Use May Be Made of Custodial Property?

13. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company13 Custodial property passes to the administrator of the minor’s estate usually to be distributed under the state laws of intestacy Note: This point is often overlooked in cases of divorce where a child may own the closely-held stock or real estate interests from one parent in an UTMA, and then by laws of intestacy a portion of this property transfers to the other parent (the ex-spouse) Who Receives Custodial Property If a Minor Dies?

14. Uniform Gifts/Transfers to Minors Act Chapter 23 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company14 If the minor is legally an adult, there is no need to appoint a successor custodian If the minor is not legally an adult, then –If the custodian has designated a successor, the designee becomes custodian –If no designated successor, then an adult member of the minor’s family, the minor’s guardian, or a trust company will be appointed –If there is no guardian and the minor is at least 14, then the minor may choose the successor If A Custodian Dies, How Is A Successor Appointed?