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How does transferring assets under the Uniform Gift to Minors Act work?
Under the federal Uniform Gift to Minors Act (UGMA), you place securities or other assets in a savings plan for a child -- usually your child or grandchild. The account is registered in the child’s name, and an adult (usually a parent or grandparent) is responsible for investing and managing the assets. The assets really belong to the child. At age 18 (in most states), the child takes control of the assets.
Many states have also adopted the Uniform Transfers to Minors Act, (UTMA), which also allows the child to own real estate. Another advantage of UTMA: you can delay giving the assets to the child until age 21.Under the Uniform Gift to Minors Act, will my child take control of the money I’ve saved for him when he turns 18?
Generally, yes. For now, you are the custodian of the account and must invest and manage the assets. But after that 18th birthday party, the child can spend the money however he or she wants without your permission. Why does saving in my child’s name hurt his ability to qualify for financial aid?
You may be tempted to start an investment account in the child’s name for his college savings. Unfortunately, saving in your child’s name or transferring your assets over to him will likely hurt his chances of getting financial aid. That’s because when a college's financial aid staff figure out how much you and your child can be expected to contribute to college expenses, they expect you to spend about 6% of your money to pay for your kid’s tuition and related costs. Your child, on the other hand, is usually expected to use about 35% of his or her money to meet college costs. It’s usually better to save the money in your name, not your child’s. One last point: If you put the money in the child's name, he can take legal control of the money at age 18 if you save under the Uniform Gift to Minors Act (UGMA), or age 21 if you use the Uniform Transfer to Minors Act (UTMA). Can he really manage that much money?Return to Questions
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