Plan Your Financial Future by Keith R. Fevurly

Author:Keith R. Fevurly
Language: eng
Format: epub, pdf
Publisher: Apress, Berkeley, CA

Gifts to Minors

If you are going to make gifts to a minor (someone who is under the state-specified age of legal majority, usually 18), you have to be concerned not only about gift-tax laws, but also about state property laws. Minors cannot take title to property in the same way individuals of legal majority—adults—can. Instead, minors must take title through custodial arrangements as specified by each state. Historically, custodial arrangements have also been a common method of saving for a child’s college education, as discussed in Chapter 15.

There are two basic types of custodial arrangements: those provided by the Uniform Gifts to Minors Act (UGMA) and those provided by the Uniform Transfers to Minors Act (UTMA). In many states, UTMA has superseded the previously enacted UGMA and is now the approved form for making property transfers to minors. Under both uniform laws, the minor is given title to property, but the property is managed by a custodian, usually the parent or grandparent of the minor. This custodian then invests and manages the gifted property on behalf of the minor and does not own the property in any respect. As such, the custodial arrangement is similar to a trust on behalf of the minor, but it lacks the complexity and cost of implementing the trust document.

All states have simple forms to title property gifted to a minor in a custodial arrangement, but be aware that custodial gifts to minors are completed gifts for federal gift-tax purposes. In other words, the gift becomes the minor’s property , and not yours, if you are the donor. As a result, at the state-specified legal age of majority, the child can do whatever they want with the gifted property. Even if the gift was intended to finance the child’s future educational expenses, they are under no obligation to go to college or pursue higher education. Meanwhile, income used for your minor child’s maintenance and support is taxable to you if you are the child’s parent, even though you may not be the named custodian of the custodial arrangement. This is because, under all state property laws, as the child’s parent you have the legal obligation to support and raise that child until they attain the legal age of majority.

Fortunately, as discussed in Chapter 15, Congress has legislated a much better technique for saving for college than custodial arrangements. Called a private savings plan , this approach for funding a child’s future educational expenses is made possible under Section 529 of the Internal Revenue Code.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.