What Is The Difference Between UTMA and UGMA?

How Are UTMA and UGMA Alike?

UTMA and UGMA are very similar. Both are uniform code proposals adopted by the individual states. Like other uniform codes (the uniform building code is a common one, for example) these work by proposing a common framework for states to use in order to prevent a hard to use patchwork of laws in each state.

The uniform code did not prevent one important variation. The UTMA or UGMA account comes under the control of the beneficiary when he reaches the age of maturity. However, that age varies from state to state. Typically, the beneficiary assumes control of the UGMA or UTMA at age 18 or 21.

The UTMA and UGMA are two different uniform codes, but they are more alike than they are different.

What Is UTMA?

UTMA is the Uniform Transfer to Minors Act. People say, “ut-mah” when they talk about them.

What Is UGMA?

UGMA is the Uniform Gifts to Minors Act. People say “ug-mah” when they talk about these.

Both UTMA and UGMA were created to allow adults, usually parents, to transfer assets to minors without the need to establish a special trust to enable such ownership. Both UTMA and UGMA accounts rely on a custodian to manage the assets in the account on behalf of a minor beneficiary.

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Funding UTMA and UGMA accounts

Contributions into a UTMA or UGMA are irrevocable transfers. That means that once the gift is made, it cannot be revoked. There is no way for the donor to change their mind and demand their assets back. This is important because such transfers are considered completed gifts and thus are not considered assets in the estate when the donor dies. This is an advantage for estate planning.

It also means that all assets inside of a UTMA or UGMA are considered assets of the student for purposes of financial aid. This is a disadvantage of UGMA and UTMA for college planning. Since students are expected to contribute a greater percentage of their assets than parents, a large UTMA or UGMA may reduce the amount of financial aid the student qualifies for.

This in in contrast to a 529 college savings plan that is typically considered part of the parent’s assets and not a student asset.

Difference Between UGMA and UTMA

The main difference between an UTMA and UGMA is what kind of assets they can hold. Assets within an UGMA are limited to bank deposits, stocks, bonds, mutual funds, and other securities and insurance policies.

UTMAs allow almost any kind of asset, including real estate to be given to the minor. All the states except for Vermont and South Carolina have adopted UTMA law.

Who Are UGMA and UTMA For?

UTMA and UGMA are useful for two main reasons. The first reason is as a long-term strategy to reduce or eliminate estate taxes. Transferred assets to either UGMA or UTMA are completed gifts so over time, several thousands of dollars may be transferred tax-free. Now that the estate tax exemption is over $11 million, only very high-net worth individuals will find UTMA and UGMA worth the time and expense.

The other reason to use an UGMA or UTMA is for estate planning. Even more so than a will, gifts inside of an UTMA or UGMA are designed to pass directly to the beneficiary. So, if you really want to make sure Susy ends up with that land in mountains, having it in an existing trust when you die will make it harder for any other decedents to challenge her ownership.

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