Uniform Gifts to Minors Act (UGMA)

What is the Uniform Gifts to Minors Act (UGMA) and How Does It Work?

The Uniform Gifts to Minors Act (UGMA) is a state law that facilitates gifting financial assets to minors by appointing a custodian to manage the property until the minor reaches the age of majority, typically 18 or 21 years old, depending on state laws.
Financial advisor discussing UGMA account with parent and child in modern office

The Uniform Gifts to Minors Act (UGMA) is a legal framework adopted by most U.S. states that allows adults to transfer financial assets to minors in a straightforward manner without the need to establish formal trusts. It was introduced in the 1950s to simplify asset transfers to minors, who cannot legally own property outright. Through UGMA, a custodian—usually a parent, grandparent, or another responsible adult—is appointed to manage the assets on behalf of the minor until they reach the age of majority defined by state law, commonly 18 or 21 years.

Key Features of UGMA

  • Asset Types Allowed: UGMA primarily covers financial assets like cash, stocks, bonds, mutual funds, and certificates of deposit (CDs). It does not generally permit real estate or complex property transfers; these are covered under the similar Uniform Transfers to Minors Act (UTMA).

  • Custodian Role: The custodian legally manages and invests the assets solely for the minor’s benefit and cannot use them for personal gain. Custodians have a fiduciary duty to act responsibly until the assets are transferred to the minor at the triggering age.

  • Age of Majority: When the minor reaches adulthood (usually 18 or 21, depending on the state), the custodian must transfer full control of the assets to the minor. From that point, the assets belong wholly to the young adult, who can manage or spend them freely.

How UGMA Works in Practice

An adult gifts assets by transferring them into an UGMA account, appointing a custodian to manage the funds until the minor becomes an adult. The custodian handles investing and safeguarding the assets. For example, a grandparent could gift $5,000 in stocks to a grandchild by establishing a UGMA account and naming themselves as custodian. The custodian collects dividends and manages the investments, but cannot use the funds for personal expenses. Upon majority, the assets pass directly to the child.

Tax Considerations

UGMA accounts come with notable tax benefits. Income generated by the assets, like dividends or interest, is taxed at the minor’s usually lower tax rate. However, under the “kiddie tax” rules, unearned income above $2,500 (as of 2025) is taxed at the parents’ higher marginal rates to prevent tax avoidance. Gifts made using UGMA accounts are subject to IRS gift tax rules; adults can gift up to $17,000 per recipient annually (2025 limit) without triggering gift tax reporting (see Gift Tax on FinHelp).

Differences Between UGMA and UTMA

While UGMA mainly covers financial assets, the Uniform Transfers to Minors Act (UTMA) allows for a broader range of giftable property, including real estate, art, patents, and other tangible assets. UTMA also typically sets the age of transfer slightly higher, often 21 or older. Both acts appoint custodians with similar fiduciary responsibilities.

Selecting a Custodian

Choosing a trustworthy custodian is critical since they control assets until the minor’s majority. Typically, parents or close relatives fill this role, managing the funds prudently. It’s important to understand their legal responsibilities, detailed in our Document Custodian Responsibilities guide.

Common Misconceptions

  • Ownership Transfer: Assets gifted under UGMA belong to the minor immediately; the donor cannot reclaim or control them after the gift.
  • Custodian Ownership: The custodian is not the owner but a manager for the child’s benefit.
  • Account Flexibility: UGMA accounts are not just savings accounts but can hold multiple investment types.

Practical Tips for Using UGMA

  • Plan gifts considering IRS annual limits and potential gift tax implications.
  • Review your state’s specific UGMA laws regarding age of majority and asset types.
  • Be aware that upon maturity, minors gain unrestricted control over the assets.
  • If intending to gift real estate or unique assets, consider UTMA or trusts instead.

What Happens If the Minor Dies?

If a minor passes away before reaching majority, UGMA assets usually become part of their estate and are handled per their will or state inheritance laws.

Further Resources

The Uniform Gifts to Minors Act remains a practical, effective means for families to give financial assets to children while ensuring responsible management until the child reaches adulthood. Selecting a reliable custodian and understanding tax implications are key to leveraging UGMA successfully for your family’s financial planning.

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