UGMA and UTMA
The Uniform Gift to Minors Act (“UGMA”), is a custodial account where a parent or grandparent could irrevocably gift for the benefit of a minor child (under the age of 18). UGMA was replaced by the Uniform Transfers to Minors Act (“UTMA”) in New York on January 1, 1997.
A UTMA account can be used to hold and protect assets for minors until they reach the age of majority as stipulated by the state or the donor. In the state of New York, the age of majority is 21, however, a donor can specifically stipulate the age of 18 as the majority.
These accounts typically allow stock, bond, and mutual fund investments, but not higher-risk investments like stock options. While the custodial account is in existence, the Custodian must collect, hold, manage, invest, and re-invest the custodial property in accordance with the standard of care. Gifts made to an UTMA account are irrevocable. The funds deposited to the account cannot be returned to the donor/transferor. However, the Custodian can, without Court order, use their discretion to use the funds in the account to or for the benefit of the child for any reason.
A large drawback of the UTMA account is that it doesn’t have provisions for special circumstances. When the minor reaches the age of 21 the assets in the custodial account must be turned over to them, but what if they are not mature enough to manage assets responsibly? What if a child is diagnosed with a developmental and/or learning disability, or has a drug and/or alcohol addiction? Regardless of these circumstances, the funds gifted to the minor will still become theirs at the age of 21. Therefore, other options that give you more control, such as trusts, should be considered.