What is a UGMA / UTMA Account?

The acronyms stand for Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). Under these uniform state statutes, an individual can gift or transfer an asset to a minor, setting up a custodial account to hold the asset. Any competent adult can act as custodian and s/he does not need to be the donor of the asset. The property in an UGMA or UTMA is owned by the child. Once the child reaches a specified age, the account terminates and the custodian must transfer the asset to the child to use in any manner he or she wishes. While the National Conference of Commissioners on Uniform State Laws draft a uniform act, it’s up to each state to adopt it, with any changes they wish to make. Since the age of majority differs from state to state, the age at which an UGMA custodial account must terminate also varies. Furthermore, under UTMA, the state can set a higher age limit at which termination must occur on some types of transfers, such as inherited assets. Generally, an UTMA offers more flexibility than an UGMA. UGMAs may only hold bank deposits, securities (including mutual funds) and insurance policies while UTMA rules allow for the gifting of any kind of asset, including real estate. Furthermore, UGMAs must be funded with gifts while UTMAs can be funded with other types of transfers, including inherited assets.

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