What are UGMA or UTMA Accounts?

by Mo Johnson
(Montclair, VA )

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act)

Nearly every state has has an UGMA and/or UTMA law which provides a relatively easy way to make gifts or transfers to minors -- without having to set up a trust. Trusts are fine and have many advantages (more protections and flexibility) -- but, particularly for relatively small gifts, it isn't worth the trouble and legal expense to set up a full-fledged trust.

UGMA and UTMA laws (nearly every state has similar, though slightly different, provisions) establish the framework for the custodial account the assets will be placed in. The basic rules for how the account will run, how withdrawals can be made; who makes them, etc -- are established by law. The provisions are fairly similar to what you would often see in a trust.

There are many ways to make a transfer into an UGMA or UTMA account. Most commonly cash or stocks or bonds are transferred by opening up a custodial account at a bank or brokerage firm. The account will be designated or titled something like this:

"John Jones, as custodian for Mary Jones, under the name of state Uniform Transfers to Minors Act"

So, Mary Jones would be the child and John would be maybe her uncle. John would control the assets to be used for Mary's benefit (reasonable rules and limitations established by the law) until Mary attained sufficent age (as established by the state law or maybe in the will) to receive the assets.