The Uniform Gifts to Minors Act and Uniform Transfers to Minors Act allow assets to be transferred to minors without a trust fund and taxed according to the child’s tax bracket. The newer act has no limits on the types of assets and a later age of maturity. The guardian manages the assets until the child reaches maturity. Violations include using the gift for personal purposes or revoking it before maturity. Assets may affect financial aid for college.
The Uniform Gifts to Minors Act is a law that affects assets — such as bank accounts, securities and brokerage accounts — that have been transferred to minors. The act is in effect in four US states; the other 46 states and Washington DC replaced it with slightly different legislation called the Uniform Transfers to Minors Act. Under both acts, assets transferred to a minor must be held by a custodian for the minor until a certain age. The law allows assets to be transferred without the need for a trust fund, and allows them to be taxed according to the child’s tax bracket rather than that of the person who gave the gift, such as the child’s parents.
In the United States, a uniform law is one agreed upon by a national committee and adopted by the legislatures of each state. When states change laws, they are no longer uniform. The Uniform Gifts to Minors Act was replaced by the Uniform Transfers to Minors Act in most of the United States beginning in 1986. With the newer act, the types of assets that can be transferred to the minor are not limited, in what are expected earlier. The age of maturity is even later under the Uniform Transfers to Minors Act, typically set at 21 (although it can go as high as 25), where it was usually 18 under the Uniform Gifts to Minors Act.
The guardian of the minor is responsible for controlling the assets and for managing, holding and investing the funds in the best interests of the beneficiary. He or she is typically compensated for performing these intermediary duties. Upon reaching the age of majority, the son acquires control of the estate.
It would be a violation of the Uniform Gifts to Minors Act for a parent or adult to use the gift for their own purposes. Another violation would be if the donor takes back or revokes the gift before the minor reaches the designated maturity age. One disadvantage for the minor is that assets will be imputed to him or her during financial aid considerations when he or she enters college.
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