UGMA stands for Uniform Gifts to Minors Act, which is a code that was adopted in all states to allow the transfer of financial assets to minor children. Except for Vermont and South Carolina, states have now adopted the UTMA (Uniform Transfers to Minors Act) account setup. Generally speaking, the custodian has control of UGMA accounts until such time as the minor reaches the age of distribution. Under UGMA rules, this means the minor has reached age 18 or 21 depending on the state. What happens if a custodian wants to cancel UMGA accounts? First, there are certain criteria that must be met including:
Following the rules of the brokerage - each brokerage will have their own requirements regarding when an UGMA account may be closed. In some cases, they may require that a letter of intent is provided to them. Some may require the custodian to state that the funds are to be used for the benefit of the minor;
Minor has reached distribution age - in the event that the minor has reached the age of distribution (varies by state) the minor is then allowed under UGMA rules to cancel an UGMA account. The minor would be required to submit a letter of intent requesting that the account be closed;
Minor is deceased - in the event that the minor dies before they reach the age of distribution it is possible to cancel UGMA account. In this instance, additional documents may be required depending on the status of the account. If the minor reached the age of distribution before their death, the funds would be required to be transferred to the estate of the beneficiary (not the custodian);
Minor is working [funding Roth IRA] - because there are no specific regulations that have dealt with the legalities of funding a Roth IRA with UGMA funds, it is possible that once the minor is working they can cancel UGMA account to fund a Roth IRA. When doing this it is important to speak to a financial advisor to make sure that these funds will be allowed to be used, based on the income of the minor.