Uniform Gifts to Minors Act - UGMA
An act that allows minors to own property such as securities. The IRS allows persons to give so many thousands of dollars to another person without any tax consequences. If this recipient person is a minor, the UGMA allows the minor to own the assets without an attorney setting up a special trust fund. Under the UGMA, the ownership of the funds works like it does with any other trust except that the donor must appoint a custodian (the trustee) to look after the account.
Investopedia Commentary
The donor can appoint him/herself or another person to be custodian. The custodian, who has a fiduciary duty to manage the minor's assets wisely, can use the funds to buy securities on behalf of the minor. Access to the gift must be given to the minor when he or she reaches the age of majority, either 18 or 21 (sometimes even 25), depending on UGMA state law. Should a donor acting as the custodian die before the custodial property is transferred to the minor, the entire custodial property is included in the donor's taxable estate.
Related Links
Investing In Your Child's Education
Don't Forget The Kids: Save for their Education and Retirement
College Savings Plans - School Yourself Before You Invest
See also: Custodial Account, Estate, Fiduciary, Gift, Guardian IRA, Kiddie Tax, Trust, Trustee, Uniform Transfer to Minors Act - UTMA
Also spelled: UGMA