The Uniform Transfers To Minors Act (UTMA) is a law recommended by the National Conference of Commissioners on Uniform State Laws in 1986 and subsequently enacted by most U.S. states. It provides a mechanism under which gifts can be made to a minor without requiring an appointed third party to be guardian for the minor. It satisfies the IRS requirements for a qualifying gift of up to $15,000 for exclusion from the gift tax.

The UTMA is a more flexible extension of the Uniform Gifts to Minors Act (UGMA) in that it allows gifts to be real estate, inheritances, and other property. Most states have adopted the UTMA and repealed the UGMA. The UTMA specifically provides that contracts in UTMA states which reference the UGMA are governed by UTMA rules.

The UGMA allowed individuals to give or transfer assets such as securities to minor beneficiaries, usually parents to their children. It was widely used prior to 1986 but has been replaced by the UTMA and is no longer operative. Under the UGMA rules, assets

such as securities were placed in UGMA accounts in the name of the minors with no need to establish a trust fund. This made the accounts subject to special tax treatment but the states varied widely in their rules for the accounts. The UTMA was established to set uniform standards for the handling of gifts-to-minors accounts while remaining within the reliable legal framework of trusts.

UTMA allows the donor of the gift to transfer title to a custodian who will manage and invest the property until the minor reaches a certain age. The donor (usually a parent or grandparent) can also be the custodian. There’s no need to transfer the management of the account a third party.

The age of maturity of the minor beneficiary in most, but not all, states is 21. Prior to maturity, the custodian can make payments for the benefit of the minor’s education out of the assets in the account. However, the value of custodianship property will be included in the donor’s gross estate if the donor dies while serving as the custodian. At maturity, an UTMA account is owned by the minor beneficiary, at which point the child assumes control of the account.

Under the UTMA, the ownership of the assets in the account transitions from the custodian to the minor upon the minor reaching the age of maturity in that state. The age at which the assets transfer to the beneficiary in the states is noted below in Table A along with the date upon which UTMA replaced UGMA.

Table A: UTMA Age Of Maturity By State

StateAgeUTMA superseded UGMA
Alabama21October 1, 1986
Alaska21January 1, 1991
Arizona21September 30, 1988
Arkansas21March 21, 1985
California18January 1, 1985
Colorado21July 1, 1984
Connecticut21October 1, 1995
Delaware21June 26, 1996
Washington DC18March 12, 1986
Florida21October 1, 1985
Georgia21July 1, 1990
Hawaii21July 1, 1985
Idaho21July 1, 1984
Illinois21July 1, 1986
Indiana21July 1, 1989
Iowa21July 1, 1986
Kansas21July 1, 1985
Kentucky18July 15, 1986
Louisiana18January 1, 1988
Maine18August 4, 1988
Maryland21July 1, 1989
Massachusetts21January 30, 1987
Michigan18December 29, 1999
Minnesota21January 1, 1986
Mississippi21January 1, 1995
Missouri21September 28, 1985
Montana21October 1, 1985
Nebraska21July 15, 1992
Nevada18July 1, 1985
New Hampshire21July 30, 1985
New Jersey21July 1, 1987
New Mexico21July 1, 1989
New York21July 10, 1996
North Carolina21October 1, 1987
North Dakota21July 1, 1985
Ohio21May 7, 1986
Oklahoma18November 1, 1986
Oregon21January 1, 1986
Pennsylvania21December 16, 1992
Rhode Island21July 23, 1998
South CarolinaN/AN/A
South Dakota18July 1, 1986
Tennessee21October 1, 1992
Texas21September 1, 1995
Utah21July 1, 1990
Virginia18July 1, 1988
Washington21July 1, 1991
West Virginia21July 1, 1986
Wisconsin21April 8, 1988
Wyoming21May 22, 1987

Until 1986, the UGMA allowed assets in the account to be taxed at the minor’s income tax rate. Since then, a tax law change known as the “kiddie tax” has reduced the tax savings available through UTMAs. The IRS rule for tax year 2021 is that for beneficiaries under age 19 (24 if a student), the first $1,100 per year of unearned income is tax-free, the second $1,100 per year is taxed at the minor’s rate and the amount over $2,200 is taxed at the child’s income  tax rate for 2021. Any amount above $2,200, however, is taxed at the marginal tax rate of the parent(s), which is usually higher than the child’s rate.

A viable strategy is to deplete the assets in the account before senior year of high school by spending for the benefit of the minor’s education on such expenses as summer courses and camps, college tour packages, books, and computers well before the minor begins applying to colleges. This would eliminate any impact on the amount of financial aid that they student is eligible to receive.