Custodial Accounts

What is a Uniform Transfers to Minors account?

A Uniform Transfers (or Gifts) to Minors account is an account you may establish under your state's version of the Uniform transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). We'll simply call it the "Uniform Act".

Although this is not the only way to establish a custodial account for a minor, the Uniform Act provides you with a convenient way to transfer money to a child. This is important because a series of "financial" gifts to children can help build up a fund for their college education or give them a start in life.

What are the advantages of a UTMA account?

The earnings on a UTMA (or UGMA) account are part of the child's income rather than the custodian's.  Although the account is owned by the child, he/she cannot access it until the age of 18 or 21, depending on your state's law.

You do not have to be a parent or legal guardian of the minor child to establish this type of account.  The custodian has the right to make deposits and withdrawals from the account for the benefit of the child, but must always act in a fiduciary capacity.  (The custodian could not , for example, use the funds in a UTMA or UGMA account for his/her own benefit because the account belongs to the minor).

How do I create a UTMA account?

A UTMA (or UGMA) account is established by titling the account as provided by the Uniform Act. If the account is titled properly, the Uniform Act itself will govern the account. The account should be titled like this:

            (NAME OF CUSTODIAN), as custodian for
            (NAME OF  MINOR), a minor, under the
            (NAME OF STATE) Uniform
            (TRANSFERS OR GIFTS) to Minors Act.

This financial institution or an attorney licensed to practice in your state will be able to provide you with information about your particular state's Uniform Act.

In most states, the Uniform Act allows you to name only one custodian and only one minor for each UTMA or UGMA account.  You may,however, name a successor custodian. The successor custodian replaces the original custodian if that individual dies or becomes incapable of performing his/her duties.

Are there any tax advantages I should consider?

Since the UTMA or UGMA account is owned by the child, the child's social security number (taxpayer identification number, or TIN), is used when opening the account. The child is taxed on the income.

If the minor for whom the account is opened does not have a TIN, the parent or legal guardian must obtain a social security number for the child and provide it to the financial institution within 60 days.  If the child is too young to make the back-up withholding certifications, the parent or legal guardian may make the certification for the child by signing like this:

                (NAME OF MINOR), by
                (SIGNATURE OF PARENT OR GUARDIAN),
                parent or guardian, for minor child.