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UTMA Accounts: An Easy Way to Make Gifts to Minors

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The holidays are upon us, as is end-of-the-year tax planning. You’re thinking about making a gift to your granddaughter, who is 14. Wouldn’t it be nice if there was a simple way to make a gift to a minor? We have good news for you: let us explain UTMA accounts.

You say UGMA, we say UTMA — should we call the whole thing off?

Arizona, like almost every other US state, has adopted the Uniform Transfers to Minors Act. The law, usually called “UTMA”, was first proposed nationwide in 1983; it replaced an earlier version called the Uniform Gifts to Minors Act, or “UGMA”, which was first proposed in 1956. South Carolina, the only state not to adopt UTMA, still has the older UGMA law in place. There are only a handful of differences, so most of the same principles apply.

The word “minor” in the law’s name is a little misleading. In fact, it covers gifts to people as old as 21, though the age of majority is 18.

Think of UTMA accounts as a sort of simplified trust. Rather than hiring a lawyer to prepare a trust document to handle the gift, the person making a gift under UTMA is relying on the uniform law’s terms and procedures. UTMA accounts are widely understood and simple to set up. Consequently, they are popular with parents, grandparents, and the banks and financial institutions they work with.

How does an Arizona UTMA account work?

When you put money in an UTMA account, it is a completed gift to the named minor. You have given up all rights to the money, as completely as if you had handed the cash to the minor, tucked inside a birthday or Christmas card.

Because a minor doesn’t have any legal authority to enter into contracts, though, it is impossible for them to open financial accounts, buy and sell stocks or certificates of deposit, or otherwise manage their new gift. Besides that, the recipient might be a newborn, or up to age 21; they might be unable to make decisions both as a legal matter and as a matter of practical reality.

The basic structure of UTMA requires you to name a custodian to handle the gift. Think of that person as a trustee, because they have pretty much the same duties and responsibilities. They invest the money (but have to do so prudently), they can use the money for the benefit of the minor (but not for their own benefit), and they are required to report to the minor (or to the minor’s parents).

When the beneficiary of an UTMA account turns 21, the custodian must turn the account over to them. That is not an option, but mandatory. The custodian does not get to decide that the (former) minor is unable to handle money. Of course, the beneficiary could agree to let the (former) custodian continue to manage the account if they are willing.

What about gift taxes and income taxes?

Taxes are taxes, right? Well, not exactly.

First, income taxes. A transfer into an UTMA account is not deductible to the person putting the money into the account. It is not income to the recipient. But the account might earn income (in fact, that’s usually the whole purpose), and THAT income will be taxed.

Who pays the tax on income in an UTMA account? The minor. Most minors do not have a lot of income, so the tax rate might be lower. But the income will still be taxable.

In order to make it less attractive to make large gifts to your children, the tax system applies a parent’s tax rate to most income of a minor. So the income taxes paid by the UTMA beneficiary might be as high as the parent’s tax rate — but it is the minor who pays the tax.

Next, gift taxes. Gifts of less than $14,000 per year are not subject to any tax — or even any reporting requirements (watch out, as there are some exceptions). That figure, by the way, will increase to $15,000 next year. A transfer into an UTMA account qualifies for this exclusion, so if you put, say, $12,000 into your daughter’s UTMA account this year, you probably will not have to tell the IRS, pay any tax or worry about it at all. Oh, and if you’re married it’s really easy to double those numbers.

Does that mean you can’t give your granddaughter $50,000 instead? No, it does not — but you’ll probably have to file a gift tax return and it would be a really good idea to talk with your estate planning lawyer.

What can the UTMA account invest in?

Pretty much anything. But the custodian has to make prudent investment decisions, so stay away from highly speculative investments. Also prohibited: any investment in the custodian’s business or as part of the custodian’s own investments.

Are there problems with UTMA accounts?

Yes, there are a few. For most people, the problems will not outweigh the value, and the simplicity, of making gifts to UTMA accounts. Still, you should know that:

  1. UTMA accounts are figured into the minor’s available assets when they apply for college scholarships or loans. A separate trust, established with the help of your estate planning lawyer, can avoid this problem.
  2. If the UTMA beneficiary is, or becomes, disabled, the account might interfere with their eligibility for public benefits — but not until they turn 21 (in Arizona).
  3. When a parent is custodian of the UTMA account, they are precluded from using the account for things they are supposed to provide (like housing, food and clothing). This probably is not a problem for most families, though. Also, once a child reaches the age of majority (18 for most purposes), parents no longer have a duty to support them in most cases — and the UTMA account may still continue to age 21. That can mean that the account can be used for necessities in some circumstances, but figuring out the limits can be challenging.
  4. (We’re sorry to bring this up, but) if the minor dies before age 21, the account belongs to his or her heirs. That could mean that your gift goes to his or her parents, or a spouse or even children if, say, they married at a very young age.

Alternatives to UTMA accounts?

You have a few. Consider setting up a real trust (consult your estate planning attorney). You might consider a Section 529 educational account, or a 529A (ABLE) account, though each of those has its own issues. Perhaps you want to simply earmark an account, retaining ownership until you decide to use the money to pay education expenses, or medical bills — or whatever you later decide would benefit your granddaughter.

She’s a lucky girl. It’s great that you are considering her future, and we applaud your desire to help take care of her. Good luck.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

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Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.