Uniform Gifts/Transfers to Minors AccountsUniform Gift to Minors Accounts (UGMAs) and Uniform Transfer to Minors Accounts (UTMAs) allow you to invest under a child's name with an adult as custodian. By law, minors (those under the age of 18 to 21, depending on your state) generally can't own securities, including mutual fund shares, outright. UGMAs and UTMAs are vehicles that allow minors to enjoy the benefits of owning securities within the limits of the law.
Who Can Invest?Any adult can invest in an UGMA or UTMA on behalf of a minor. For the most part, any adult can also be the custodian of the account, though some states require the child's parent or legal guardian to fill this role. Gifts from an adult to a minor of more than $13,000 per year are taxable gifts and may be subject to gift tax. This tax is paid by the person making the gift.
Things to Consider
Using the MoneyIf the child begins college before reaching the age when the custodianship ends, money in an UGMA or UTMA can be used to pay higher education costs, as long as the custodian agrees. When the child reaches the age when custodianship terminates, however, he or she takes complete control of the assets and can use them for any purpose.
When the account is still under the custodian's control, withdrawals from an UGMA or UTMA can be used to pay for special expenses those beyond the normal costs of living. The custodian must agree to these withdrawals, however, and they must be for the child's benefit. There is no penalty if the proceeds are used to pay for non-educational expenses, regardless of the child's age.