UGMA vs UTMA: Difference and Comparison

When supporting children and saving for them, families opt for the best investment options to secure their futures. UGMA and UTMA are two such options mostly taken up by families.

Key Takeaways

1. UGMA stands for Uniform Gifts to Minors Act, while UTMA stands for Uniform Transfers to Minors Act.
2. UGMA allows for gifting money or assets to minors in a custodial account. In contrast, UTMA allows for gifting a wider range of assets, including real estate, intellectual property, and fine art.
3. UGMA custodial accounts must be liquidated and transferred to the minor at age 18, while UTMA custodial accounts can be held until age 25 in some states.

UGMA vs. UTMA

UGMA allows adults to make irrevocable gifts of cash, securities, and other assets to minors without a formal trust, with the custodian managing the assets until the minor reaches majority. The UTMA allows adults to make irrevocable gifts of cash, securities, and other assets to minors, with an age of majority of 18 or 21.

UGMA is the abbreviated form of the Uniform Gift to Minors Act. It is a custodial savings account that allows a family to donate basic assets for their children’s future, which are handed over to beneficiaries when they complete the age of 18.

UTMA is also a savings account but allows a broader range of assets to be donated, and it matures when beneficiaries reach 25 years of age.

Comparison Table 

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 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 support purposes.	The uniform Transfer to Minors Act is a custodial account that can be used for support or 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 short for the Uniform Gift to Minors Act.

It is a custodial savings account that acts as an irrevocable trust, which means that it 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 taking care of it until it is handed over to its beneficiary.

UGMA allows people to donate only 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, 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 get higher.

If the minor is a college student, the assets in the UGMA account are considered the student asset 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 custodial savings account that families use to invest in 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 matures when the minor beneficiary completes the minimum age of 18. However, one can terminate it anywhere between 18 and 25. The taxation system of UTMA is similar to that of UGMA. 

Main Differences Between UGMA and UTMA  

1. UGMA stands for Uniform Gift to Minors Act; on the other hand, UTMA stands for Uniform Transfer to Minors Act.
2. UGMA and UTMA are options for custodial savings accounts that families can choose for their children.
3. Uniform Gift to Minors Act is the savings account for which the custody is in the hands of parents or guardians, and families use it 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.
4. The 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 to be donated to minors; it includes gifts of money, life insurance policies, stocks, annuities, etc.
5. UGMA allows less time before maturity, whereas UTMA allows more time before maturity compared to UGMA.
6. 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.

References

1. https://www.martindale.com/matter/asr-237998.pdf
2. https://scholarship.richmond.edu/lawreview/vol22/iss4/14/