What Is the Uniform Transfers to Minors Act (UTMA)?

The Uniform Transfers to Minors Act (UTMA) allows a minor to receive gifts—such as money, patents, royalties, real estate, and fine art—without the aid of a guardian or trustee. A UTMA account allows the gift giver or an appointed custodian to manage the minor's account until the latter is of age. UTMA also shields the minor from tax consequences on the gifts, up to a specified value.

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Understanding the Uniform Transfers To Minors Act

How the Uniform Transfers to Minors Act (UTMA) Works

The UTMA is an extension of the Uniform Gift to Minors Act (UGMA), which was limited to the transfer of securities. Note that, while the UTMA offers a way to build a tax-free savings account for minor children, the assets will be counted as part of the custodian's taxable estate until the minor takes possession. The UTMA was finalized in 1986 by the National Conference of Commissioners on Uniform State Laws and adopted by most of the 50 states. It allows minors to receive gifts and avoid tax consequences until they become of legal age for the state, which is typically age 18 or 21.

While the UTMA offers a way to build a tax-free savings account for minor children, the assets will be counted as part of the custodian's taxable estate until the minor takes possession.

UTMA vs. UGMA

The difference between the UTMA and UGMA is the maturity time. The UTMA allows for maturity before it is handed to the beneficiary, up to 25 years. The UGMA matures at 18 years.

The termination date for each are different as well. While UGMA termination is at 18 years, the termination age for UTMA is 21. Further, UGMA accounts allow parents to donate gifts such as money, stocks, or life insurance. However, UTMA accounts only allow the donation of basic assets.

Legal History

The UTMA is similar to the original version of the UGMA that was developed in 1956 and revised in 1966. The UGMA provides a way to transfer property to a minor without the need for a formal trust. It allows property to be managed by a custodian who is appointed by the donor. The property is then turned over to the minor when the minor becomes of legal age in the state where the gift was made.

The UTMA incorporates the language of the UGMA and extends the original definition of gifts beyond cash and securities to include real estate, paintings, royalties, and patents. It is up to each state to adopt or amend the UTMA. The state of Florida passed a statute in 2015 that allows the property to be held by the custodian until the minor is 25 if desired.

Key Takeaways

  • The Uniform Transfers to Minors Act (UTMA) allows a minor to receive gifts without the aid of a guardian or trustee.
  • The minor can avoid tax consequences until they attain legal age for the state.
  • The donor can name a custodian who has the fiduciary duty to manage and invest the property on behalf of the minor until the minor becomes of legal age.

Tax Implications

Starting in 2018, the IRS allows for an exclusion from the gift tax of up to $15,000 per person for a qualifying gift, including gifts to minors. The UTMA provides for a convenient way for children to save and invest without carrying the tax burden. The minor’s Social Security number is used for tax reporting purposes on UTMA accounts. It is also important to note that because assets held in a UTMA account are owned by the minor, this may have a negative impact when the minor applies for financial aid or educational scholarships.

Control of Assets

The Act allows the donor to name a custodian, who has the fiduciary duty to manage and invest the property on behalf of the minor until the minor becomes of legal age. The property belongs to the minor from the time the property is gifted. If the donor dies while serving as custodian, the value of the custodianship property is included in the donor’s estate.