What is an UGMA/UTMA account?

UGMA/UTMA is a tax efficient manner to save for college and transfer wealth to children. UGMA stands for The Uniform Gifts to Minors Act, and UTMA stands for The Uniform Transfers to Minors Act. They are virtually similar in all respects.

Purpose of UGMA/UTMA Accounts

The UGMA/UTMA account allows someone to make gifts or transfers of property to a minor without setting up a trust. The transfers made to an account of this type are considered an irrevocable transfer to the minor in whose name the account is registered.

Eligibility requirements

·  Depending on the type of transfer provided in the UGMA/UTMA statute, an UGMA/UTMA account can be established for any child under the applicable age (usually 18).

·  An adult is designated as the custodian to manage the account for the benefit of the minor until the child reaches the age specified in the statute. Upon reaching that age, the custodian is responsible for distributing or transferring the funds to the minor. Custodians have certain powers and responsibilities under these laws and they should consult with legal counsel to understand their obligations with respect to the account.

·  No income restrictions exist. You may make gifts to a child's UGMA/UTMA account regardless of your income.

·  Anyone may make gifts to a child's UGMA/UTMA account.

Control of Accounts

·  In establishing a UGMA/UTMA account, the individual who will be responsible for overseeing and management of the account is referred to as the custodian. The custodian is legally bound to judiciously manage the funds in the account. Upon reaching the age of majority, the minor can then assume control over the account, even if it counter's the wishes of the custodian.

Annual Contribution limits

·  Under the annual federal gift-tax exclusion, each donor may generally make gifts of $12,000 per year, per child without federal gift-tax consequences. Please consult your tax advisor concerning your individual circumstances.

Contribution timing

·  You can make annual contributions to an UGMA/UTMA account during the calendar year, January 1 through December 31.


Tax Considerations

·  All earnings are reported to the IRS under the child's social security number. Consult your tax advisor about federal and state income tax consequences.

Financial Aid Considerations

·  The account may be included in the child's assets when determining financial aid eligibility.

Distribution Guidelines

·  When the minor reaching the applicable age (usually 18 or 21, but in some cases, 25), the custodian is responsible for distributing or transferring the funds to the minor.

·  Once the child gains control of the account, the funds in the account can be used for any purpose and the minor is not limited in using the funds. The funds are not required to be used for education expenses.