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The Uniform Gifts to Minors Act, sometimes known as UGMA, is a statute that permits adults to provide assets to kids without creating a trust. UGMA accounts are custodial accounts that retain assets in a minor's name until they attain the age of majority, which varies by state and is often 18 or 21.
UGMA accounts have the advantages of being simple to start up and having low costs. Additionally, they have certain tax benefits because the first $1,100 of account income is tax-free and the following $1,100 is taxed at the child's rate. Before obtaining a UGMA account, there are a few downsides to take into account.
The fact that the youngster gains full ownership of the account and can use it for any reason once they achieve legal adulthood is one of the key disadvantages. The money cannot be used in a way that the custodian restricts or directs. Another issue is that for financial aid purposes, UGMA accounts are viewed as the child's assets, which could lower their eligibility for grants and scholarships.
In order to give a little sum of money to a kid without setting up a trust, UGMA accounts are best suited for parents or grandparents. Furthermore, they should be sure that when the juvenile becomes an adult, they will handle the money responsibly. Other choices, such as trusts or 529 plans, may be more appropriate for greater sums of money or for more control over how the money is spent.
