What are UTMA and UGMA accounts?

UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) accounts are custodial accounts that allow adults to transfer assets to minors.

Key Points Explained by Brad Barrett:

• UTMA Accounts: Allows transfers of more types of assets compared to UGMA. Ideal for managing investments for minors, where the adult custodian manages the account until the minor reaches adulthood (usually 18 or 21, depending on the state) 1.
• UGMA Accounts: Limited to financial assets like cash and securities. Some states may only allow UGMA accounts, such as Vermont and South Carolina, where UTMA accounts aren't permitted 2.

Points of Consideration:

• Asset Control: Once the minor reaches adulthood, they gain full control of the account. This is significant as some parents may have concerns about their child's financial responsibility at that age 3.
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    1

    Kids' Investment Accounts

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    2

    Investing for Kids

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    3

    Child Asset Management

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    4

    Teaching Financial Literacy

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    5

    Financial Aid Strategies

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• Impact on Financial Aid: Assets in these accounts are considered the child's assets. For college financial aid (FAFSA), these assets are assessed at a higher rate, typically around 50%, compared to 5% if they were in the parent's name. This could affect the amount of aid the student is eligible for, prompting some parents to reconsider or use alternative strategies 1 3 4 5.

Both accounts serve as mechanisms for adults to provide financial assets to minors, but choosing between them depends on the type of asset, state regulations, and long-term financial plans for the child.