What is it?
The Uniform Transfers to Minors Act (UTMA) is a law enacted in most states authorizing parentsor other designated custodians to manage investments for the benefit of a minor child. Everystate has some form of this law on its books. An older form of this law, the Uniform Gifts to MinorsAct (UGMA), unlike UTMA, does not authorize investments in specific types of property;otherwise, it’s essentially the same as UTMA.
Typically, an UTMA investment is held in an account established at a financial institution. TheUTMA account is the child’s property. Each account can have only one child-owner. Any moneyplaced in an UTMA account is an irrevocable gift to the child.
Transfers to an UTMA account qualify for the $19,000 (in 2025) annual gift tax exclusion eventhough the minor’s possession of the account property is delayed until he or she reaches the ageof 18, 21, or 25 (depending on the state).
Parents can gift up to $38,000 (in 2025) per child federal gift tax free if they elect to split thegift.
No special legal forms or trust documents are required to establish an UTMA account. Almost allbanks and financial institutions will help you set up an UTMA account for your child at no charge.The account will be named “(Your Name), as custodian for (Minor’s Name) under the (your state)Uniform Transfers to Minors Act,” and your child’s Social Security number will be used.
An account can be set up by you (the child’s parent), or by any adult. Once an account isestablished, anyone (e.g., grandparents) can make unlimited contributions to it. Any adult or(almost any) financial institution can serve as custodian.
The custodian must comply with the particular state’s UTMA statute, which generally gives thecustodian broad powers regarding investments, and does not subject the account to courtsupervision. This compares favorably with the alternative of court-appointed guardianship over aminor’s property, which requires close judicial scrutiny.
Property in an UTMA account which you’ve established for your child will be includedin your gross estate for federal estate tax purposes if you serve as custodian. If estate tax liabilityis likely, you may want to consider asking a responsible person (e.g. a close family member) toserve in your stead.
Advantages
May minimize federal gift and estate tax
Gifts to an UTMA account reduce your gross estate for federal estate tax purposes, and gifts ofup to $19,000 (in 2025) are federal gift tax free under the annual gift tax exclusion. Any futureappreciation in the gifted property is also removed from your gross estate. Therefore UTMAaccounts are well suited for growth investments and other property that is expected tosignificantly increase in value over the long term.
May minimize capital gains taxes
Another advantage of holding long-term, appreciating property in an UTMA account is that whenthe property is finally sold (e.g., to pay for college), any capital gain will be taxed at the minor’scapital gains tax rate, which may be lower than the parents’ rate.
The kiddie tax rules, discussed below, significantly limit the ability to benefit from achild’s lower capital gains tax rate.
May minimize income taxes
Significant income tax savings is possible with an UTMA account because children usually havelittle income and have the benefit of their own standard deduction. The tax savings are greater ifthe parent is in a high tax bracket.
However, be aware that special rules commonly referred to as the “kiddie tax” rules apply when achild has unearned income (for example, investment income). Children subject to the kiddie taxare generally taxed at the parents’ tax rates on any unearned income over a certain amount. Thisamount is $2,700 (in 2025) (the first $1,350 (in 2025) is tax free and the next $1,350 (in 2025) is
Caution:
taxed at the child’s rate). The kiddie tax rules apply to (1) those under age 18, (2) those age 18whose earned income doesn’t exceed one-half of their support, and (3) those ages 19 to 23 whoare full-time students and whose earned income doesn’t exceed one-half of their support.
When a parent’s legal obligation to support his or her child is satisfied from funds in anUTMA account (or from any source, for that matter), those funds are taxed to the parent, not thechild.
Tradeoffs
UTMA account is irrevocable
A gift to an UTMA account is irrevocable; the money can’t be taken back. The minor must begiven full access to the account when he or she reaches the age prescribed by law (i.e., 18, 21),even if he or she is financially irresponsible.
Could have negative impact on eligibility for financial aid
Since an UTMA account is in the child’s name, it is counted as his or her asset for the purpose ofdetermining eligibility for college financial aid. This could result in a reduction in the amount of aidthe child might otherwise receive.
Prepared by Broadridge Advisor Solutions. © 2025 Broadridge Financial Services, Inc.
The articles and opinions expressed in this document were gathered from a variety of sources, but are reviewed by Strickland Financial Group, LLC prior to its dissemination. Any articles written by Graham M. Strickland or Strickland Financial Group will include a ‘by line’ indicating the author. Strickland Financial Group provides a full range of financial services, including but not limited to: life, health, disability and long term care insurance, group and individual retirement plans and individual investments. Receipt of literature in no way implies suitability of product(s) in your financial plan. Strickland Financial Group maintains networking relationships with estate planning attorneys and tax professionals but does not itself offer legal or tax advice. Securities offered through Osaic Wealth Inc., Member FINRA/SIPC. Advisory services offered through S&S Wealth Management, LP (S&S). A Registered Investment Advisor. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Strickland Financial Group is not affiliated with S&S Wealth Management, LP.
This communication is strictly intended for individuals residing in the state(s) of TX, NE, OK and FL. No offers may be made or accepted from any resident outside the specific states referenced.
