The Uniform Transfers To Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) are two laws that combine to produce the acronym “UTMA/UGMA”. They are useful tools for parents and others seeking to reduce taxes while accumulating assets for college.
First came UGMA, a type of custodial account which was introduced in 1956 and revised in 1966 as a means of transferring assets from parents to their children. Under UGMA rules, assets such as securities could be placed in an account in the name of a child, obviating the need to create a trust. The rules made such accounts subject to special tax treatment. However, states varied widely in their tax rules for them. The UTMA was established in 1986 to set national uniform standards for the handling of gifts-to-minors within the proven legal framework of trusts.
The UTMA is a more flexible extension of the UGMA. It redefines gifts to include real estate and other tangible property. It was recommended by the National Conference of Commissioners on Uniform State Laws in 1986 and was subsequently enacted by most U.S. states. States that had UGMA laws, with the exception of South Carolina and Vermont, repealed their UGMA law and replaced them with the UTMA. The UTMA in these states stipulated that contracts that refer to the UGMA are henceforth governed by UTMA rules.
The UTMA provides a mechanism under which gifts can be made to a child without requiring a third party to be the child’s custodian. UTMA satisfies the IRS rules for the gift tax exclusion in 2025 of $19,000 per child for an individual parent or $38,000 for a married couple. If a single parent has multiple children, he or she can gift $19,000 to each of them.
In most cases, annual gifts that exceed $19,000 are subject to gift tax rules. However, if used within a 529 Plan, a parent may contribute up to five years of gifts, or $95,000 ($190,000 for married couples) in a single year without having it count toward the lifetime gift and estate tax exemption ($13.61 million in 2025).
UTMA allows the donor of the gift to transfer title to a custodian who will manage and invest the assets until the child reaches a certain age. The donor, usually a parent or grandparent, can designate themselves to be the custodian. Although it’s not necessary to transfer account management to a third party, it may be done by a donor if desired.
The age of maturity of the minor beneficiary is 21 in most states, but a few set it at 18. Prior to maturity, the custodian can make payments for the benefit of the minor’s education. These are drawn from the assets in the account. At the age of maturity, an UTMA account is owned and controlled by the minor beneficiary. The age at which the assets transfer to the beneficiary in the 50 states and the District of Columbia is shown below in Table A.
Table A:
UTMA Age Of Maturity By State
| State | Age |
| Alabama | 21 |
| Alaska | 21 |
| Arizona | 21 |
| Arkansas | 21 |
| California | 18 |
| Colorado | 21 |
| Connecticut | 21 |
| Delaware | 21 |
| Washington DC | 18 |
| Florida | 21 |
| Georgia | 21 |
| Hawaii | 21 |
| Idaho | 21 |
| Illinois | 21 |
| Indiana | 21 |
| Iowa | 21 |
| Kansas | 21 |
| Kentucky | 18 |
| Louisiana | 18 |
| Maine | 18 |
| Maryland | 21 |
| Massachusetts | 21 |
| Michigan | 18 |
| Minnesota | 21 |
| Mississippi | 21 |
| Missouri | 21 |
| Montana | 21 |
| Nebraska | 21 |
| Nevada | 18 |
| New Hampshire | 21 |
| New Jersey | 21 |
| New Mexico | 21 |
| New York | 21 |
| North Carolina | 21 |
| North Dakota | 21 |
| Ohio | 21 |
| Oklahoma | 18 |
| Oregon | 21 |
| Pennsylvania | 21 |
| Rhode Island | 21 |
| South Carolina | N/A |
| South Dakota | 18 |
| Tennessee | 21 |
| Texas | 21 |
| Utah | 21 |
| Vermont | N/A |
| Virginia | 18 |
| Washington | 21 |
| West Virginia | 21 |
| Wisconsin | 21 |
| Wyoming | 21 |
Prior to 1986, the UGMA allowed assets in the account to be taxed at the child’s income tax rate. Since then, a tax law known as the Kiddie Tax has reduced the tax savings that may be derived from UGMA/UTMA’s. The Kiddie Tax was created as part of the Tax Reform Act of 1986 to prevent parents from shifting an excessive amount of income-producing assets into a child’s name to take advantage of the child’s lower tax rate. Under the current Kiddie Tax rules, the first $1,350 of unearned income is covered by the Kiddie Tax’s standard deduction, so it is tax-free. The next $1,350 is taxed at the child’s marginal tax rate. Anything above $2,700 is taxed at the marginal tax rate of the parents.
The value of the assets withdrawn in any given year is considered a student-owned asset, which is then assessed at 50% for FAFSA Federal student aid purposes. This means that the student’s eligibility for financial aid is reduced by 50% of the value of the assets withdrawn while the student is in their senior year of high school or in college. To reduce the negative impact on financial aid eligibility, a common strategy is to deplete the assets in the account while the student is in high school by spending for the benefit of the student’s education on such expenses as summer courses, educational camps, college tour packages, test-prep courses and books, computer equipment, and other eligible expenses. This reduces or eliminates a reduction in the amount of total financial aid that the student may receive.
Once the designated beneficiary (child) reaches the age of maturity and takes control of the account, there are no limitations on the expenditures that can be paid through an UTMA. While it may be used for tuition, room and board, books, etc., it can also be used to pay for a car, put a down payment on a house, or any other expense of the beneficiary’s choosing.
Recent Comments