The uglier side of the UGMA.

• Author: Godfrey, Howard
• Position: Uniform Gifts to Minors Act

Gifts made to minors under a state Uniform Girls to Minors Act (UGMA) can have unintended consequences when the minor reaches the age of majority. The following case serves as a reminder of how dangerous the use of UGMA accounts can be.

Facts

Martha Schout was born on Nov. 30, 1980. When she was three weeks old, her grandparents gave her 100 shares of Abbott Laboratory stock under the North Carolina UGMA, to be used for her education. Martha's mother, Anne, was appointed custodian of the stock. Under the UGMA, the custodial relationship was to terminate when Martha reached age 18. Martha's grandparents later gave her an additional 200 shares of Abbott stock.

In subsequent years, all Abbott stock splits and dividends were deposited in Martha's bank account. For several years, Anne allowed the stock to grow and financed Martha's private school tuition with her own funds. In 1994, she needed to sell 300 shares of the stock to help pay tuition. In 1997, she sold additional shares for tuition and to buy Martha a car and a computer. Anne later sold 300-400 shares to pay tuition for the first semester of Martha's senior year at a private high school.

Martha reached age 18 on Nov. 30, 1998. One month later, she dropped out of school and moved to Atlanta, GA, with a man 10 years her senior and without a discernible means of support. In response, Anne directed the bank to sell 3,100 shares of Abbott stock, so that she could recoup the money she had spent on her daughter's private school education. Martha...