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 Most states have adopted the UTMA and repealed the UGMA.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 It was widely used prior to 1986 but has been replaced by the UTMA and is no longer operative.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
|State||Age||UTMA superseded UGMA|
|Alabama||21||October 1, 1986|
|Alaska||21||January 1, 1991|
|Arizona||21||September 30, 1988|
|Arkansas||21||March 21, 1985|
|California||18||January 1, 1985|
|Colorado||21||July 1, 1984|
|Connecticut||21||October 1, 1995|
|Delaware||21||June 26, 1996|
|Washington DC||18||March 12, 1986|
|Florida||21||October 1, 1985|
|Georgia||21||July 1, 1990|
|Hawaii||21||July 1, 1985|
|Idaho||21||July 1, 1984|
|Illinois||21||July 1, 1986|
|Indiana||21||July 1, 1989|
|Iowa||21||July 1, 1986|
|Kansas||21||July 1, 1985|
|Kentucky||18||July 15, 1986|
|Louisiana||18||January 1, 1988|
|Maine||18||August 4, 1988|
|Maryland||21||July 1, 1989|
|Massachusetts||21||January 30, 1987|
|Michigan||18||December 29, 1999|
|Minnesota||21||January 1, 1986|
|Mississippi||21||January 1, 1995|
|Missouri||21||September 28, 1985|
|Montana||21||October 1, 1985|
|Nebraska||21||July 15, 1992|
|Nevada||18||July 1, 1985|
|New Hampshire||21||July 30, 1985|
|New Jersey||21||July 1, 1987|
|New Mexico||21||July 1, 1989|
|New York||21||July 10, 1996|
|North Carolina||21||October 1, 1987|
|North Dakota||21||July 1, 1985|
|Ohio||21||May 7, 1986|
|Oklahoma||18||November 1, 1986|
|Oregon||21||January 1, 1986|
|Pennsylvania||21||December 16, 1992|
|Rhode Island||21||July 23, 1998|
|South Dakota||18||July 1, 1986|
|Tennessee||21||October 1, 1992|
|Texas||21||September 1, 1995|
|Utah||21||July 1, 1990|
|Virginia||18||July 1, 1988|
|Washington||21||July 1, 1991|
|West Virginia||21||July 1, 1986|
|Wisconsin||21||April 8, 1988|
|Wyoming||21||May 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.