When it comes to supporting children and saving for them, families opt for the best options to invest in order to secure their futures. UGMA and UTMA are two such options that are mostly taken up by families.
UGMA vs UTMA
The main difference between UGMA and UTMA is that UGMA stands for Uniform Gift to Minors Act and it is a type of custodial savings account that is used by families to support their children at the time of need, it allows the donation of the basic assets and reaches maturity when the beneficiary is of age 18, on the other hand, UTMA is the custodial savings account that can be used for supporting children as well as for some other purposes, it allows a reader range of assets that can be donated and gets matured when the beneficiary reaches the age of 25.
UGMA is the abbreviated form of the Uniform Gift to Minors Act. It is a type of custodial savings account that allows a family to donate basic assets for the future of their children which are handed over to beneficiaries when they complete the age of 18.
UTMA is also a savings account but it allows a broader range of assets that can be donated and it matures when beneficiaries reach 25 years of age.
Comparison Table Between UGMA and UTMA
| Parameter of Comparison | UGMA | UTMA |
| Stands for | UGMA is the short or abbreviated form of the Uniform Gift to Minors Act. | UTMA is the abbreviated form of the Uniform Transfer to Minors Act. |
| What it means | UGMA is a sort of savings option that a family can choose for their children when they are in their minor ages. | UTMA is also a type of saving option that a family chooses for their children when they are still minors. |
| Purpose of use | Uniform Gifts to Minors Act is a custodial account used only for the support purposes. | Uniform Transfer to Minors Act is the custodial account that can either be used for the purpose of support or for some other purposes. |
| Assets allowed for donation | UGMA is the account that allows the donation of basic assets like bonds and stocks. | UTMA is the account that allows a broader range of assets that can be donated such as money, stocks, annuities, life insurance, arts, patents, cars, real estate, etc. |
| Age of Termination or maturity | UGMA account matures when the minor reaches the age of 18. | UTMA allows more time before maturity than UGMA. It matures when the beneficiary reaches the age of 25. |
What is the Uniform Gift to Minors Act?
UGMA is the short for Uniform Gift to Minors Act. It is a type of custodial savings account that acts as irrevocable trusts which mean that they can be termed as a separate entity in which a person invests for the benefit of someone else and can’t be used on yourself. Being custodial means that one has to take care of it until it is handed over to its beneficiary.
UGMA allows a person to donate only the basic assets such as bonds, stocks, mutual funds, etc to their children. UGMA account reaches maturity when the minor beneficiary reaches the age of 18. If a person receives an annual payout from the UGMA account then they have to pay tax on it as per the various tax slabs, if the payout is Los then the tax rates are low and if the payout is high, rates also gets higher.
If the minor is a college student, then the assets in the UGMA account are looked upon as the student asset as per the FAFSA application. However, it can be used by the beneficiary wherever they want.
What is the Uniform Transfer to Minors Act?
UTMA is the abbreviated form of the Uniform Transfer to Minors Act. It is also a type of custodial savings account that is used by families to invest for their families.
UTMA allows a broader range of assets that can be donated such as money, stocks, funds, cars, arts, real estate property, personal belongings, etc. UTMA account gets matured when the minor beneficiary completes the minimum age of 18, however, one can terminate it anywhere between the age of 18 and 25. The taxation system on UTMA is similar to that of UGMA.
Main Differences Between UGMA and UTMA
- UGMA stands for Uniform Gift to Minors Act, on the other hand, UTMA stands for Uniform Transfer to Minors Act.
- UGMA and UTMA both are the options of custodial savings accounts that the families can choose for their minor children.
- Uniform Gift to Minors Act is the savings account for which the custody is in the hands of parents or guardians and it is used by families to support their children, on the other hand, Uniform Transfer to Minors Act is the savings account that can be used to support children by families and can be used for some other purposes.
- Uniform Gift to Minors Act allows the donation of basic assets only, on the other hand, the Uniform Transfer to Minors Act allows a range of assets that can be donated to the minors, it includes gifts of money, life insurance policies, stocks, annuities, etc.
- UGMA allows less time before maturity whereas UTMA allows more time before maturity as compared to the UGMA.
- Uniform Gift to Minors Act savings account reaches maturity when the minor beneficiary completes the age of 18, on the other hand, Uniform Transfer to Minors Act reaches maturity when the minor completes the age of 25.
Conclusion
UGMA and UTMA both are savings account for which the custody is with parents or grandparents. Both have specific features, therefore, before investing one should understand properly its terms and conditions. By investing in the correct way, one can ensure a secure future for their children.
References
- https://www.martindale.com/matter/asr-237998.pdf
- https://scholarship.richmond.edu/lawreview/vol22/iss4/14/