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Lessons for Investing: The Uniform Gift to Minors Act


In some U.S. states, the Uniform Gift to Minors Act allows adults to transfer assets to their children or grandchildren. Dr. Shirley Mueller and her husband utilized the UGMA to give a monetary gift to their granddaughter tax-free up to a certain age. To learn more about Mueller's experience, continue below.

Under the UGMA, recipients do not need a special attorney to own the assets.

Seventeen years ago, my husband and I gave our granddaughter, then one year of age, a monetary gift under the Uniform Gifts to Minors Act (UGMA). The idea was that the money could grow tax-free up to a threshold and then be used by our granddaughter for her education.

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The level of earned income at which she would have to pay taxes in 1999 was $1,900.00 up to age 24. So far, our granddaughter has never had to pay any taxes. The reason is that her dividends and income have been small.

A rising tide lifts all boats

The money is invested in Vanguard funds with low expense and turnover. These include the Vanguard Total Stock Market Index (VTSMX), the Vanguard Total International Stock (VGTSX) and the Vanguard Short Term Bond Index (VBISX). Though the stock investments are doing brilliantly now, as are all similar assets, this was not always so. From 2000 to 2009, our gift for our grandchild lost almost half its value twice, once in 2003 and again in 2009. Now, we have a sweet period, but we also have a continual rise in the indexes that can’t seem to quit.

What goes up, must come down

Of course, balloons always eventually drop to earth. According to American Superior Company, we are way overdue for this same phenomenon in the market. American Superior classifies a market correction as a drop of 10 percent or more. It occurs twice every three years. A bear market, according to Superior, is a drop of 20 percent or more, which occurs every five years.

Food for thought

The ups and downs of this UGMA demonstrate several principals of investing.

  • In the short term, money can be lost. Retirees without a cushion other than invested monies, beware!
  • But in the long term, stock market assets accrue to a higher value. Younger people can rejoice knowing they have time ahead of them.

An important feature of our granddaughter’s portfolio, or any similar investment, is that in the intervening seven years since 2010, it has changed in character. The Vanguard Total Stock Market Index (VTSMX) has increased considerably more than the Vanguard Total International Stock (VGTSX), while the Short -Term Bond (VBISX) remained stable. This brings up another principle of investing: rebalancing a portfolio when it is not in line with the objectives. In the case of our granddaughter’s UGMA, VGTSX AND VBISX should be brought back to their original percentages.

This column incorporates segments from two earlier columns I wrote about our granddaughter’s UGMA in 2010 and 2013.

Discover more Dentist’s Money Digest® news here.

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