Custodial Accounts (UGMA/UTMA)
The Uniform Gifts to Minors Act (UGMA)/
Uniform Transfers to Minors Act
The UGMA/UTMA is traditionally set up as a way to gift both cash and securities to a minor without the use of a formal trust. While the account is controlled by the custodian until the beneficiary reaches the age of majority (18 or 21 depending on which state the account is held in), the account is technically owned by the beneficiary. The owner can make any transaction within the account that he or she sees or understands to be in the beneficiary's interest.
Qualified distributions from UTMAs/UGMAs are flexible. Provided that the withdrawal is used for the benefit of the beneficiary, it will be deemed acceptable. No restrictions will be placed upon what is purchased for the child, other than that the money withdrawn must be used for the child's needs. Any beneficiary older than the age of 14 is expected to sign his or her tax return, and the custodial account becomes registered under his or her name immediately upon reaching the age of majority.
Commonwealth Financial Network® does not offer tax or legal advice. Please see your attorney for information specific to your situation.