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UGMA / UTMA

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.

UGMA / UTMA Advantages

  • These types of accounts allow a minor to own securities, or in the case of UTMAs, other assets such as real estate.
  • An UGMA's or UTMA's earning are the child’s tax liability, not the custodian’s.

UGMA / UTMA Disadvantages

  • The child is the owner of the asset, and the donor cannot legally rescind the gift.
  • If the donor is the custodian, and he or she dies before the child reaches the specified age, the custodial account’s assets are included in the donor/custodian’s estate. In the case where a grandparent is the donor, this risk may be minimized by naming the parents as custodian.
  • When the child reaches the specified age, the custodian must turn the assets over to the child.
  • Children under the age of 18 are now taxed at their parents' top marginal rate which eliminates most of the benefit from shifting income-producing assets to children. After attaining age 18, a child is taxed at his or her own rate.
  • Holding the asset in the child's name can greatly affect the child’s eligibility for financial aid for higher education. Under current financial aid formulas, assets owned by a child count much more heavily than parental assets in determining qualification for aid.
  • In the event of the child's death before termination of the account, the assets will pass according to the intestacy laws in the applicable state.

In light of these issues, families looking to invest a significant amount of money for college expenses may wish to investigate alternate savings options. Your Legend Advisor can guide you in determining a suitable approach for your situation. Furthermore, if an UGMA/UTMA is already in place, your Advisor can assist you in opening a §529 custodial account with those funds.

See Legend's Comparison of Investments for College Savings for further details.


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Legend Equities Corporation and its affiliates do not provide tax, estate planning or legal information or advice. Consult with your tax advisor and/or attorney before investing.