Uniform Transfers to Minors Account (UTMA): Uniform Transfer to Minor Accounts allow any adult, or custodian, to invest for the benefit of a minor under the minor's name. By law, minors (those under the age of 18) generally can't own stocks, bonds, mutual funds, annuities, real estate. UTMAs are a way a minor can receive the benefits of owning assets within the limits of the law.

Who could start a UTMA?

Any persons desiring to give a minor a gift without requiring a court appointed guardian or construction of a trust. These other alternatives are costly and require detailed records and tax filings. UTMA saves time and money by not requiring a person to go to court in order to distribute property from the account. Instead, a custodian is established. A custodian can be any adult related or not related to the minor.         

What is a custodian?

A custodian manages the assets on behalf of the minor and can invest the assets as the custodian feels is proper. The custodian is not the owner of the account. The minor is considered the owner of the assets and the minor's social security number is used for tax reporting. The custodian is the only one who can transact on the account as well as close it. The minor is the beneficiary and cannot transact on the account. 

What kind of gifts qualify and how may they be used?

Any assets can be given to a minor and there is no limit to the amount of money that can be invested. For example stocks, bonds, mutual funds, annuities, real estate, or cash. A custodian can spend the money for the benefit of the child, so long as the expenses aren't "parental obligations" or otherwise benefit the custodian. Parental obligations are expenses a parent is normally expected to provide for his or her child, such as food, clothing, medical care and shelter. However, if your child wants a computer or to go to summer camp, it is usually acceptable to spend the child's money on those expenses. Likewise, you can spend the child's money for the child's college education. Gifts from an adult to a minor of more than $12,000 per year are taxable gifts and may be subject to gift tax. This tax is paid by the person making the gift. 

How is an UTMA taxed?

The tax advantage from a custodial account is that it is taxed at the child's rate, subject to the Kiddie Tax rules. The parent is responsible for filing an income tax return on behalf of the child. 

Why might I not want to start a Uniform Transfer to minor Account?

Once the child takes control of the account, the child may use the money for purposes other than education or any other intended expense the custodian had in mind. An UTMA could also reduce financial aid. If your family is applying for need-based financial aid, having an UTMA may reduce the size of the package.

This information is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

For more information contact a Member Service Representative at (530) 895-1947.