The Uniform Gift to Minors Act allows a parent or other guardian to open an account in a minor's name without setting up a trust fund or naming a legal guardian. The parent or guardian becomes the custodian of the account, which gives them the responsibility of managing the funds by investing or purchasing securities. Once the minor reaches the age of majority, usually 18 or 21, the funds automatically are transferred into his name, according to Investor Words.Continue Reading
The person who sets up the account, also known as the donor, becomes the custodian of the account or appoints someone else in that role, per Investopedia. The age that a minor receives the funds depends on the Uniform Gift to Minors Act, or UGMA, laws in each state. If the donor acting as the custodian dies before the funds are transferred to the minor, the account becomes part of the donor's estate.
Funds added to the UGMA account are taxed at the minor's tax rate, according to Investor Words. These funds are usually set aside for the minor's college education costs. However, the UGMA account may negatively affect the chance for financial aid because the child's assets are weighed more heavily than the parents by financial aid officers.Learn more about Law