Uniform Transfers to Minors Act (UTMA)

A law the allows minors to receive financial gifts and therefore invest in stocks, amongst other financial assets! The minor needs the support of an eligible sponsor who is often a parent/relative.

3 min read

What is the Uniform Transfers to Minors Act (UTMA)?

The UTMA is a newer version of the Uniform Gift to Minors Act (UGMA)! It allows minors to receive gifts and avoid some tax consequences until they become of legal age in the state in which they live—typically 18 or 25.

Unlike the UGMA accounts, which is cash only, a UTMA allows minors to own many different financial assets! Like stocks, crypto, real estate, paintings, royalties, and even patents.

An UTMA is a way for minors to save and invest without the full tax burden. That means you can send your child up to $16,000 per person for 2022 ($17,000 for 2023) without any government tax!

Taxes are reported to the minor’s identity. All assets are also owned by the minor, so this can have a negative impact on financial aid qualifications (if you invest significant amounts).

Each state has varying laws and guidelines! For example, Florida lets minors own any kind of property (even a mansion!) while New York limits Crypto ownership for minors. Overall, most states allow for stock trading!

Any profits within an UTMA are taxed at the kiddie tax rate by the IRS up to $2,200/year. Profits beyond that are taxed at the sponsor’s rate!

Fiduciary Duty + Legal Specifics

The custodian, or sponsor, has the fiduciary duty to oversee and invest the property on the minor's behalf until the minor reaches legal adulthood.

If the sponsor dies, the value of the property is included in the sponsor’s estate.

Some assets, like real estate, in a UTMA are taxed to the sponsor until the minor takes possession when they become a legal adult.

Uniform Transfers to Minors Act (UTMA) vs. Uniform Gift to Minors Act (UGMA)

The UTMA (finalized in 1996) is the newer version of the UGMA (1956)! The UTMA includes more financial assets, while the UGMA only allows for cash gifts.

The UGMA is great for serving as a formal trust.

Otherwise, the sponsorship, tax benefits, and contribution restrictions are very similar!

A sponsor who is a legal adult is still required to look after the account.

There is no tax-deduction for funds in the account, but deposits up to $16k/person (2022) and up to $17k/person (2023) are tax-free!

Can a Minor Receive Gifts or Assets Without a Guardian or Trustee?

Yes! A minor can receive gifts or assets without the guardian or trustee. But, you still need a sponsor!

The UTMA lets any trusted loved one transfer money to a minor with some simple tax benefits, without having to form an official trust.

Third parties can also serve as the custodial of the assets!

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

The UTMA and the UGMA have comparable objectives, yet they also differ significantly. Most significantly, the UTMA permits the gifting of a wider range of assets, including financial instruments like stocks and bonds.

The UTMA offers more time for specific assets, like bonds, to grow! On the other hand, the UGMA forces all assets to the minor as soon as they turn 18! If the teen’s birthday is hovering around a bad time in the market, this can be less than ideal.

What Are the Pros and Cons of an UTMA Account?


The main benefit of using a UTMA account is the exemption from gift taxes of up to $16,000 per year for 2022 ($17,000 for 2023) on the money contributed to the account.

Any income is taxed at the minor’s rate! Unless the child is making more than the sponsor or parent, this means the tax rate is significantly lower! And overall, that means more money in the teen’s bank account.


If a significant amount of funds is in the UTMA account, the teen can be less eligible for need-based financial aid and other scholarship programs.

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 the age of majority! Often 18 to 25, depending on the state.

It’s best to speak with your UTMA/teen investing app for specifics on how the transfer is handled.

Investing for Teens

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