UGMA vs UTMA
UGMA stands for Uniform Gift to Minors Act, while UTMA is Uniform Transfer to Minors Act. They are some of the savings options which families can choose for their children while they are still called minors. While the difference between UGMA and UTMA can be very minimal, it becomes of paramount importance when making the decision. It’s very important for parents and caretakers to be well acquainted with the financial options the child can access. UGMA and UTMA are the two types of custodial accounts, as opposed to guardian accounts.
Features of UGMA and UTMA
For both the UGMA and the UTMA savings options, the parent or grandparent is the official custodian who donates assets, and who also runs the account management. The custodian names the beneficiary and determines the age at which the beneficiary receives the money. The custodian is also required to be financially sound so that he can make donations and oversee management of the assets. The beneficiary is required in both cases to be a US citizen, or permanent resident with a social security number. Basically, the account is in the beneficiary’s name, but run by a custodian.
These two accounts are both taxed to the child (beneficiary) for the interest, gains or dividends, and have no restrictions on withdrawals for the parent, although they can’t be legally closed by the parent.
Differences
Termination age may vary from one state to another, but generally, for the UGMA trust, the termination age is 18 years, while for the UTMA trust, the termination age is 21.
The UGMA account will permit a parent to donate gifts to the child while they are both still alive, and allows gifts such as money, life insurance, stocks or annuities. The UGMA account generally has stricter rules, and will only permit basic assets to donate.
The UTMA account however, allows you more time for control of the account than the UGMA, and it will also allow investments in more assets than with the UGMA account. Depending on in which state it is opened, maturity time could reach up to 25 years. This is especially useful if a parent worries the child could misuse or overspend the money if they get access to it before they are finished with college.
Normally, the UGMA account limits usage only for support obligations, but the UTMA account will allow one to extend usage to more than just support purposes.
Summary:
UGMA stands for Uniform Gift to Minors Act, while UTMA stands for Uniform Transfer to Minors Act.
UTMA allows for more maturity time before handing to it over to the beneficiary (up to 25 years), depending on the state, while the UGMA matures at 18 years.
Only basic assets can be donated with a UGMA, whereas UTMA allows a broad range of assets to be donated.
UGMA is used for support purposes, while the usage of UTMA can be extended for more than support obligations.