# Uniform Transfers to Minors Act (UTMA): What It Is and How It Works

![Uniform Transfers to Minors Act (UTMA)](https://www.investopedia.com/thmb/n9V5ufpRSk310wyZbsox58rqT_I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UTMA-4187209-5eda4bba8bd84343bce13260228777e5.jpg)

*— Joules Garcia / Investopedia*

> **Definition**
>
> The Uniform Transfers to Minors Act (UTMA) is a law that enables adults to gift various assets to children through a custodial account until the child reaches the age of majority. 

## What Is the Uniform Transfers to Minors Act (UTMA)?

The Uniform Transfers to Minors Act (UTMA) is a law that allows minors to receive gifts, such as cash, real estate, royalties, patents, or fine art, without the need for a formal trust.

Instead, a UTMA account is created, with a donor or appointed custodian managing the assets on the minor’s behalf until they reach the age of majority set by state law. These accounts can also offer tax advantages, since the minor’s unearned income is typically taxed at a lower rate up to certain limits.

### Key Takeaways

*   The Uniform Transfers to Minors Act (UTMA) allows a minor to receive gifts without the aid of a guardian or trustee.
*   The law is an extension of the Uniform Gifts to Minors Act.
*   The minor named in the UTMA can avoid tax consequences until they attain the legal age for the state in which the account is set up.
*   The donor can name a custodian, who has the fiduciary duty to manage and invest the property on behalf of the minor until they become of legal age.
*   It is up to individual states to adopt or amend the UTMA for their residents.  
    

## Understanding the Uniform Transfers to Minors Act (UTMA)

The UTMA is similar to the original version of the [Uniform Gifts to Minors Act (UGMA)](https://www.investopedia.com/terms/u/ugma.asp). It allows minors to receive gifts and avoid tax consequences until they become of legal age in the state in which they live—typically 18 or 21 years of age. The UTMA incorporates the language of the UGMA and extends the original definition of gifts beyond cash and securities to include real estate, paintings, [royalties](https://www.investopedia.com/terms/r/royalty.asp), and [patents](https://www.investopedia.com/terms/p/patent.asp).

The UTMA provides a convenient way for children to save and invest without carrying the tax burden. The [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) allows for an exclusion from the [gift tax](https://www.investopedia.com/terms/g/gifttax.asp) of up to $19,000 per person for 2025, a $1,000 increase from the previous year, for a qualifying gift, including gifts to minors.

The minor’s [Social Security number (SSN)](https://www.investopedia.com/terms/s/ssn.asp) is used for tax reporting purposes on UTMA accounts. Because assets held in a UTMA account are owned by the minor, this may have a negative impact when the minor applies for [financial aid](https://www.investopedia.com/how-does-financial-aid-work-4782003) or [scholarships](https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132).

Each state has the option to adopt or amend the UTMA for its residents. For example, South Carolina has not adopted the UTMA for its citizens, and Florida passed a statute in 2015 that allows any [property](https://www.investopedia.com/terms/p/property.asp) to be held by the UTMA custodian until the minor is 25, if desired.

> **Important**
>
> Any income generated within a UTMA account is taxed under the kiddie tax rules. In 2025, the first $1,350 is tax-exempt, the next $1,350 is taxed at the child’s rate, and any amount above $2,700 is taxed at the parent’s marginal rate.

## Special Considerations

The UTMA allows the donor to name a custodian, who has the [fiduciary duty](https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp) to manage and invest the property on behalf of the minor until that minor becomes of legal age. The property belongs to the minor from the time the property is gifted. If the donor dies while serving as custodian, the value of the custodianship property is included in the donor’s [estate](https://www.investopedia.com/terms/e/estate.asp).

> **Fast Fact**
>
> The assets in a UTMA are counted as part of the donor’s taxable estate until the minor takes possession.

## Uniform Transfers to Minors Act (UTMA) vs. Uniform Gifts to Minors Act (UGMA)

As noted above, the UTMA is similar to an earlier version of the UGMA. In fact, it is an extension of the UGMA. The UGMA was developed in 1956 and revised in 1966. It is limited to the transfer of cash or securities. The UTMA was finalized in 1986. Both laws were approved by the National Conference of Commissioners on Uniform State Laws and adopted by most of the 50 states, but each state can modify its statute.

The UGMA and UTMA provide a way to transfer property to a minor without the need for a formal [trust](https://www.investopedia.com/terms/t/trust.asp). They allow [assets](https://www.investopedia.com/terms/a/asset.asp) to be managed by a [custodian](https://www.investopedia.com/terms/c/custodian.asp) who is appointed by the donor. The assets are then turned over to the minor when they become of legal age in the state where the gift was made.

The primary difference between the UGMA and the UTMA is in the assets that are allowed in these accounts. UGMAs are limited to cash and securities, but many types of property can be transferred to minors in the UTMA, including:

*   Cash
*   Stocks and bonds
*   Patents
*   Royalties
*   [Real estate](https://www.investopedia.com/terms/r/realestate.asp)
*   Fine art
*   [Mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) and other investments
*   Intellectual property

Contributions to a UGMA or UTMA are made using after-tax dollars, which means donors don’t receive a tax deduction for making them. Just like a UTMA, gifts made to a UGMA are [tax-free](https://www.investopedia.com/terms/t/tax-free.asp) up to $19,000 per person for 2025.  

## Can a Minor Receive Gifts or Assets without a Guardian or Trustee?

Yes, a minor can receive gifts or assets without a guardian or trustee, as it is stipulated in the Uniform Transfers to Minors Act. The UTMA is a law that governs the transfer of assets from adults to minors. It provides parents and other adults with a [tax-advantaged](https://www.investopedia.com/terms/t/tax-advantaged.asp) way to pass on gifts to minors without needing to create a formal trust. In doing so, the adult who donates the gift would typically act as the custodian for those assets until the minor reaches legal age. Alternatively, the donor can also appoint a third party to serve as the custodian of those assets.

## What Is the Difference Between the UTMA and the Uniform Gifts to Minors Act (UGMA)?

The UTMA and the UGMA serve similar purposes, but there are important differences between them. Most notably, the UTMA allows for a [broader range of assets to be gifted](https://www.investopedia.com/ask/answers/house-title.asp), including patents, royalties, real estate, and art.

The UTMA also provides additional time for the assets being gifted to reach their maturity dates, such as in the case of a bond. By contrast, the UGMA requires the assets to be assumed by the minor once the minor reaches 18 years of age.

## What Are the Pros and Cons of Using a UTMA Account?

The main advantage of using a UTMA account is that the money contributed to the account is exempt from paying a gift tax of up to a maximum of $19,000 per year for 2025. Any income earned on the contributed funds is taxed at the tax rate of the minor who is being gifted the funds. Since the minor’s income is presumably significantly lower than that of the adult donor, this can lead to significant tax savings.

One of the drawbacks of using a UTMA account, however, is that it can make the recipient less eligible for need-based college scholarship programs and other such initiatives.

## When Can a Child Claim Ownership of an UTMA Account?

Depending on the state, a UTMA account is handed over to a child when they reach either age 18 or age 21. In some jurisdictions, at age 18 a UTMA account can only be handed over with the custodian’s permission, and at 21 is transferred automatically. Inquire with the bank or brokerage where the UTMA is housed for clarification.

## The Bottom Line

The Uniform Transfers to Minors Act (UTMA) is a law designed to allow a minor to receive gifts, including money, patents, royalties, real estate, fine art, securities, and more, without the aid of a guardian or trustee. It is similar to an earlier law, the Uniform Gifts to Minors Act (UGMA), which was limited to gifts of cash and securities.

UTMA accounts are often set up to help fund a child’s education, although it’s important to keep in mind that having a UTMA may impact a child’s qualification for financial aid or scholarships. A 529 plan may be a better choice for a child headed to college.  

> **Article Sources**
>
> 1.  Social Security Administration. “[SI 01120.205 Uniform Transfers to Minors Act](https://secure.ssa.gov/poms.nsf/lnx/0501120205).”
>     
> 2.  Internal Revenue Service. “[Frequently Asked Questions on Gift Taxes](https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes),” select “How many annual exclusions are available?”
>     
> 3.  Vanguard, Personal Investors. “[UGMA/UTMA Accounts](https://investor.vanguard.com/accounts-plans/ugma-utma).”
>     
> 4.  Cornell Law School, Legal Information Institute. “[Uniform Transfers to Minors Act](https://www.law.cornell.edu/wex/uniform_transfers_to_minors_act).”
>     
> 5.  Florida Legislature. “[The 2024 Florida Statutes: Chapter 710, Transfers to Minors](http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0710/0710.html).”
>     
> 6.  Internal Revenue Service. "[Rev. Proc. 2024-40](https://www.irs.gov/pub/irs-drop/rp-24-40.pdf)."
>     
> 7.  Financial Industry Regulatory Authority. “[2019 Examination Findings Report; Uniform Transfers to Minors Act (UTMA) and Uniform Grants to Minors Act (UGMA) Accounts](https://www.finra.org/rules-guidance/guidance/reports/2019-report-exam-findings-and-observations/utma-and-ugma).”
>     
> 8.  Financial Industry Regulatory Authority. “[FINRA Reminds Member Firms of Their Responsibilities for Supervising UTMA and UGMA Accounts](https://www.finra.org/rules-guidance/notices/20-07).”
>     
> 9.  The Tax Adviser. “[Making Gifts to Minors](https://www.thetaxadviser.com/issues/2011/mar/casestudy-mar2011.html).”
>     
> 10.  Finaid. “[UGMA & UTMA Custodial Accounts](https://finaid.org/savings/ugma/).”
>      
> 11.  Experian. “[What Are UGMA and UTMA Accounts?](https://www.experian.com/blogs/ask-experian/what-are-ugma-and-utma-accounts/)”
>      
> 12.  Internal Revenue Service. “[Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)](https://www.irs.gov/taxtopics/tc553).”
>      
> 13.  Saving for College. “[UTMA & UGMA Accounts vs. 529 Plans](https://www.savingforcollege.com/article/differences-between-ugma-and-utma-accounts-and-529-plans).”