Hey Ashley! Better contact your broker. Because I believe one of them (maybe UGMA) is only limited to securities, and the other (UTMA) allows cash, securities, and a bunch of other stuff. But since the terminology is so mixed and brokers all have different offerings, I would suggest call them directly for a chat.

I do like the idea of transferring stock directly, and passing on unrealized gains. :)

Hey Alan, I think it’s a personal choice. I’m not a father (yet) so I don’t know what type of gift I would want to set up for them. For me, I think the *lesson in investing* is more important than the money itself. So perhaps I won’t give my kids anything – and just teach them how to start from $0 when they get their first job. (I’m cruel)

Also it depends on whether you want them to have the money when they turn 18, or whether you just want them to inherit it “one day”. Money from parents –> kids can transfer tax free a number of ways when the parent dies. So that’s something to think about.

College is another thing to consider. Many parents set up college savings accounts which could have better features.

Do you have any friends that could advise you? Give Fidelity a call and just chat through the options maybe?

This seems like a great idea. Would you suggest parents to open this account for their own kids?

I’m not sure Jen. Are you asking about putting a minor’s name down as the beneficiary of your accounts should you pass away? I believe you can do this – but might need to still name another adult custodian in charge until the minor turns legal age. Best to call up your brokerage and IRA broker to see how to list the person per their records. (I believe you list the person’s name (or a trust), not the UGMA account, but I could be wrong there).

Awesome! Thanks for the tips. Def going to consider this.

Yay beer!

Hey Amanda! I’ll answer here, AND we’ll discuss over beer :)

– From my understanding it doesn’t matter where the “custodian” lives. Only where the kid lives. The account is in his/her name, so rules apply to the state they are in when they turn legal age.

– Yes I guess it could be a surprise, BUT: a) you need the kid’s Social Security Number. So probably another adult has to know and b) you could be screwing up the kid’s chance of getting financial aid later in life. In hindsight, I wish I discussed this more with the parents first to see how my gift fits into the kid’s overall “inheritance & gift strategy”. Make sense?

– I don’t think they can access anything early! But what would an under 18y/o need that much money for in the first place? haha.

– Paying taxes starts the moment there are realized capital gains. So it depends on what funds you are invested in within the account. Consider this just like a regular brokerage account. You pay taxes when you sell stock higher than what you bought it for, and make gains. If you never sell stock for 20 years, you pay no taxes. As soon as you sell something, it becomes “realized”. Make sense? This might be an over beer discussion!

I had been going back and forth on the 529s (complicated by state) but I like this idea! Had never heard of it until now! Thanks for the ideas!

– Does it matter if you live in California and nephew doesn’t? Assuming not since Sparticus and newbie live on East Coast? 
– Do you have to tell anyone you are doing this? Like can it be a total surprise in 5+ years from now? 
– Can the child access money ahead of time if emergency (like dipping into a 401K early)?
– When exactly does paying taxes come into play? When kiddo uses the money 20 years from now? 

Nah, my nephews are to ugly to model for my blog. Just kidding! That’s definitely a good idea I’ve heard some people do. Not for me though :)