DRIP Investing, Step by Step

Forms of Ownership

There are several forms of ownership that you can use (if applicable) for your DRIP account.

The most common forms of stock registration are as follows:

Jane Jones Smith
Joint Tenants
John W. Smith & Jane J. Smith JT TEN
Minor Ownership
Jane J. Smith, custodian for Mary Ann Smith (child's SS#)
Jane J. Smith, Trustee U/A DTD 4-30-96, Jane J. Smith Trust
XYZ Investment Club, A Partnership c/o John W. Smith

A common question arises when investors desire to give or purchase stock for their minor children or grandchildren. Since minors may not legally own stock directly, a custodian must be the owner of record. The child is the account owner, but the custodian controls the account until the child is no longer legally a minor.

All states, except South Carolina and Vermont, have adopted or the Uniform Transfers to Minors Act (UTMA) to govern the transfer of ownership of property to children. South Carolina and Vermont have a similar provision called the Uniform Gift to Minors Act (UGMA). Both UTMA and UGMA accounts limit the minor's access to the account until he or she reaches the age of majority as set by state law, typically from 18 to 21 years of age.

These plans also offer favorable tax treatment of investment earnings. Effective for 2006, earnings are untaxed up to $850 and then taxed at the child's rate up to $1,700. Earnings are then taxed at parent's tax rate until the child turns 18 or if the child's investment income exceeds $1,700. These amounts are subject to change.

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