Uniform Transfers to Minors Act (UTMA)

The Uniform Transfers to Minors Act (UTMA) lets adults transfer assets to minors without creating a formal trust. A custodian manages the custodial account on the minor’s behalf until the minor reaches the age of majority set by state law. UTMA accounts accept a wide range of property (cash, securities, real estate, royalties, patents, art, etc.), and can offer tax advantages because unearned income is often taxed at the child’s lower rate up to certain limits.

How UTMA works

• A donor transfers property to a custodial account for a named minor. The property legally belongs to the minor from the time of the gift.
• A custodian (often the donor or another appointed adult) has a fiduciary duty to manage and invest the assets for the minor’s benefit until the transfer age.
• The minor’s Social Security number is used for tax reporting.
• Gifts are irrevocable once made; the minor gains full legal ownership at the specified age.
• State law governs adoption and specific rules for UTMA accounts; states can modify ages, custody rules, and allowable property.

Tax considerations

• Contributions are made with after-tax dollars (no deduction for the donor).
• Gift tax annual exclusion applies (the raw content cited $19,000 per person for 2025).
• Unearned income in the account is subject to kiddie tax rules. (The raw content referenced 2025 thresholds: the first $1,350 tax-exempt, the next $1,350 taxed at the child’s rate, and amounts above $2,700 taxed at the parent’s marginal rate.)
• If the donor dies while acting as custodian, the custodial property may be included in the donor’s taxable estate.

UTMA vs. UGMA

• UGMA (Uniform Gifts to Minors Act) — older statute limited to cash and securities.
• UTMA — broader, allows many other types of property (real estate, royalties, patents, fine art, intellectual property, etc.).
• Both provide a way to transfer assets to a minor without a formal trust and require a custodian to manage the property until the transfer age.

Pros and cons

Pros
* Simple mechanism to transfer wealth to a minor without a trust.
* Broader asset acceptance than UGMA.
* Potential tax savings by using the child’s lower tax rates on unearned income (within kiddie tax limits).
Cons
* Assets are owned by the minor and can reduce eligibility for need‑based financial aid and some scholarships.
* Gifts are irrevocable and become the minor’s property at the transfer age.
* Custodial property may affect the donor’s estate if the donor served as custodian and dies.

When does the child gain control?

• Transfer age varies by state—commonly 18 or 21; some states permit transfer up to age 25 or have other variations.
• In some jurisdictions, a custodial transfer at 18 may require custodian permission, with automatic turnover at 21.
• Check the account custodian (bank or brokerage) and state law for the applicable age and rules.

Alternatives and considerations

• For education savings, 529 plans are often preferable because they can offer favorable financial-aid treatment, tax-free growth for qualified withdrawals, and greater control by parents or account owners.
• Consider the child’s likely need for financial aid, asset type, tax implications, and whether you want the child to have full control at the state-specified age before choosing between UTMA, UGMA, 529, or a trust.

Bottom line

UTMA custodial accounts provide a flexible, straightforward way to give assets to minors without a formal trust and can offer tax benefits. Because rules (including transfer age and allowable property) vary by state and because custodial ownership can affect financial aid and estate considerations, review state statutes and consult the financial institution or a tax/estate professional before establishing an account.