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Uniform Transfers to Minors Act

You need to understand what the Uniform Transfers to Minors Act is Here’s what to know.

What is the Uniform Transfers to Minors Act?

The Uniform Transfers to Minors Act (UTMA) is an extension of the Uniform Gifts to Minors Act (UGMA) that lets individuals give financial gifts to minor children, without setting up a trust. These gifts are tax-free up to $12,000 and may be used for anything that benefits the child, including computers, braces, tutoring and music lessons. An appointed adult oversees the account until the child reaches the age of majority in the state, usually between the ages of 18 and 25.

Deeper definition

The UTMA expands UGMA’s definition of gift to include money, real estate, art, royalties and patents, and lets children save and invest without a tax burden. Although every state in the U.S. adopted the previously used UGMA, many of them added to it or amended it so that it lost its uniformity across the country. The expansions provided under UTMA bring the various state rules back into alignment.

In addition to expanding the definition of a gift, UTMA makes other changes to previous uniform acts like UGMA. It allows property transfers based on future events instead of only present gifts, and it establishes jurisdictional guidelines to reduce conflicts during interstate transfers.

UTMA also limits the liability of custodians. Property given under the UTMA belongs to the child only and has the child’s Social Security number attached to it for identification. The custodian overseeing the account manages it, and it counts toward that person’s taxable estate until the child is old enough to take over the account.

Another advantage of giving gifts through the UTMA is the assurance that the child directly benefits from the money. It’s considered fraud to closing a UTMA account or take money from it for personal use, and those who suspect fraud have the option to investigate and sue the person who used the funds inappropriately.

Want to build a nest egg for your children? You might look into a certificate of deposit.

Uniform Transfers to Minors Act example

A grandmother would like to give her grandchild $8,000 from the money she made selling her home. If she gives the money directly to her granddaughter, the child’s parents could very well decide use all or some of the money for household bills. By giving the gift through the UTMA, the parents do not have access to the money (unless one of them is appointed custodian), and the custodian can only use the money for purchases that directly benefit the child.

Are you considering giving a gift through UTMA to boost a child’s college savings account? Use Bankrate’s return on investment calculator to estimate how much you can expect to give.

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