CUSTODIAL ACCOUNTS I. What is an UTMA or UGMA II. Basic Facts of by vmarcelo

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									                                CUSTODIAL ACCOUNTS
                    UNIFORM TRANSFERS TO MINORS ACT (UTMA)
                      UNIFORM GIFTS TO MINORS ACT (UGMA)
Many investors are interested in opening mutual fund accounts for their children or grand-
children. Because minors generally can’t own mutual fund shares outright, Pax World is pleased
to offer UTMA and UGMA custodial accounts for children. These accounts are opened under the
child’s name with an adult custodian who is responsible for managing the assets until the child
reaches the age of majority.
An UTMA or UGMA account offers a child the opportunity to enjoy the experience of owning a
mutual fund, and may also offer tax savings as children usually have lower income tax rates than
adults. Be sure to consult a tax adviser before deciding if an UTMA or UGMA is the right choice
for your family. Assets held in an UTMA or UGMA may affect your child’s financial aid eligibility
for college.
I. What is an UTMA or UGMA?
An UTMA or UGMA is a custodial arrangement that allows individuals to open an account to
benefit a minor child. The account is established under the child’s social security number, with an
adult (usually a parent or guardian) as custodian. These accounts may be used to offset the cost of
higher education or simply to help a young person get started on the road to financial security.
The UGMA (Uniform Gifts to Minors Act) was created in 1956 and the UTMA (Uniform
Transfers to Minors Act) in 1986. Most states have now adopted the UTMA. Once a state adopts
the UTMA, you can no longer establish an UGMA for a child living in that state.
There are very few differences between an UTMA and an UGMA. The most significant are:
    Age of Majority – In most states, the child could take ownership of an UGMA account at
       age 18. For UTMAs, the age of majority is usually 21.
    Types of Gifts – Usually, only cash, mutual funds, securities and insurance policies can be
       held in an UGMA. The UTMA is more flexible and generally allows almost any asset to
       be gifted to the minor.
Ask Your Financial Adviser – Due to the differences among states and the various statutes on
UTMAs and UGMAs, please consult your financial adviser to determine which custodial account
(an UTMA or an UGMA) your state allows and to review the guidelines for the age of majority in
your state.

II. Basic Facts of an UTMA or UGMA
       Contributors: Anyone (friends, grandparents, family) can contribute to an UTMA or
        UGMA.
           Although there is no limit to how much you can contribute to an UTMA or
              UGMA, gifts over $12,000 per year (or over $24,000 from married couples filing
              jointly) may be subject to federal gift taxes. (Please consult the IRS or your tax
              adviser for the most current tax information.)
             Custodian: There can be only one custodian on the account at any time. The
              responsibilities of the custodian are to:
                  make all investment decisions such as buying or selling shares and reinvesting
                    dividends.
                  authorize any changes to the account such as address changes or to arrange for an
                    automatic investment plan.
                  withdraw money from the account for the child’s benefit, including such expenses
                    as education or a new bike or car.

             Taxes: Income on the UTMA or UGMA is reported under the child’s social security
              number. For the 2006 tax year for a child under age 18, the first $850 of unearned income
              is federal income tax-free. Income from $850 to $1,700 is taxed at the child’s tax rate.
              Earnings over $1,700 may be taxed at the parent’s rate. For a child aged 18 or over, all
              income over $850 is taxed at the child’s rate. (For future tax years, these amounts may be
              increased to reflect a cost-of-living adjustment. Please consult the IRS or your tax adviser
              for the most current tax information.)

             Age of Majority: When the child reaches the age of majority, the custodian must turn
              over the assets to the child. Once the child reaches the age of majority, he or she may use
              the assets for any purpose, regardless of the custodian’s wishes.
     III. How to Open an UTMA or UGMA Account
         1. Read the Fund’s prospectus carefully.
         2. Complete the application included with the prospectus.
                    Section 1 C:
                       Write the custodian’s name, date of birth and SSN on the first line.
                       Be sure to enter the abbreviation of the child’s state of residence next to
                         “Uniform Gifts to Minors/Transfers to Minors Act”.
                       Write the child’s name, date of birth and SSN on the bottom line.
         3. Complete Sections 2 through 5.
         4. The custodian must sign and date the application in Section 6. The child does not need to
            sign the application.
         5. Write a check payable to Pax World Funds.
         6. Mail the completed application and check in the envelope provided, or address an envelope
            to:
                           Pax World Funds
                           P.O. Box 9824
                           Providence, RI 02940-8024



Please note that the information above does not constitute financial advice. Always consult your personal tax adviser or
financial adviser before making any investment decisions. This information sheet must be accompanied or preceded by a
prospectus. The prospectus contains more complete information about the Funds, including fees and expenses. Please read it
carefully before you invest or send money. Distributor: PFPC Distributors, Inc., Member NASD, April 2007

								
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