Uniform Gift to Minors Act (UGMA) Accounts
These are custodian accounts where an adult opens and manages the account for a minor. There can be only one custodian and one minor. The minor and custodian do not need to be related, but the custodian must be an adult. The minor is the official owner of the account and its assets; the custodian is responsible for managing the account.
Custodians have third-party trading authorization allowing them to make trades in the accounts. Because minors are not old enough to make trades, they cannot trade in the account. Full rights to the assets in UGMA accounts are transferred over to the minor once the minor reaches the age of majority in his/her state of residence. The minor is the legal owner of the account, however.
Minors under the age of 18 pay taxes for earned income in excess of $950. Earnings are taxed at the child’s rate until they exceed $1900, after which they are taxed at the parent’s rate.
Gifts can be made to the account from other adults, but all gifts are