UGMA/UTMA

The UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) are state-level laws that establish the legal framework for custodial accounts. Both allow adults to contribute money or assets for minors’ benefit without creating a trust or requiring a guardianship.

UGMA: Uniform Gifts to Minors Act

The UGMA, passed in 1956, was one of the first uniform laws (created by the National Conference of Commissioners on Uniform State Laws) to simplify gifts to minors without trusts.

Under UGMA:

• Adults can open an account for a minor beneficiary.
• Assets are transferred to the child at age of majority (18 or 21, depending on state).
• Allowed assets are typically limited to cash, securities (stocks, bonds, mutual funds), and insurance.
• Simple, straightforward, and still used in many states.

UTMA: Uniform Transfers to Minors Act

The UTMA, updated in 1983, modernized UGMA by:

• Allowing transfers of any type of property (real estate, patents, business interests, art).
• Providing flexibility for the custodian to delay transfer beyond age of majority (if the account creator specifies).
• Offering more control and customization options.

Most states have adopted UTMA, replacing UGMA, though some offer both.

Key differences

How they work in practice

A parent or grandparent opens a UGMA or UTMA account at a brokerage or bank. They contribute funds (or securities) for the child’s benefit. The account is held in the custodian’s name “as custodian for [Child Name] under [State] UGMA” or “UTMA.”

The custodian invests and manages the account. The child is the beneficial owner and will receive the funds at age of majority.

Transfer at age of majority

At the transfer age (typically 18 or 21, varying by state and account type), the account automatically becomes the child’s. The custodian has no further control. The child can use the funds for any purpose — college, a car, travel, or anything else.

If the creator wants the account to remain in a more restricted form after the child’s age of majority, a trust (not UGMA/UTMA) is more appropriate.

Tax considerations

UGMA/UTMA accounts are subject to the “kiddie tax” rule: the first $1,300 of unearned income per year is tax-free, the next $1,300 is taxed at the child’s rate, and excess is taxed at the parent’s rate.

The account’s earnings and growth must be reported on the child’s tax return (or parent’s return if certain thresholds are met).

When to use UGMA/UTMA

• Simple gifts from relatives. Grandparent wants to gift money for a child’s future.
• Consolidating cash gifts. Birthdays, holidays, and other gifts can be pooled into one account.
• Education savings. If you do not want a 529 plan.
• Flexible-purpose savings. If the money may be used for non-education purposes.

When NOT to use UGMA/UTMA

• Estate planning. If you want the money to stay in the family trust beyond the child’s age of majority.
• Tax optimization. High-income parents trying to shelter income; the kiddie tax limits this benefit.
• Control after transfer. If you want to restrict how the child uses the money after reaching age of majority.
• Substantial amounts and financial aid. If the child will apply for need-based aid; custodial accounts reduce aid eligibility.

See also