What Is the Uniform Gifts to Minors Act (UGMA)?

The Uniform Gifts to Minors Act (UGMA), developed in 1956 and revised in 1966, allows individuals to give or transfer assets to underage beneficiaries鈥攖raditionally, parents and their children, respectively. The amount is free of gift tax, up to a certain amount. The assets are usually placed in UGMA accounts on behalf of minors, eliminating the need for an attorney to establish a special trust fund. UGMA funds are also subject to special tax treatment.

Key Takeaways

  • The Uniform Gifts to Minors Act (UGMA) provides a way to transfer financial assets to a minor without the time-consuming and expensive establishment of a formal trust.
  • A UGMA account is managed by an adult custodian until the minor beneficiary comes of age, at which point he assumes control of the account.
  • UGMA account-generated earnings are not tax-sheltered, but they are taxed at the minor's lower "kiddie tax" rate, up to a certain amount.

How the Uniform Gifts to Minors Act (UGMA) Works

A UGMA account functions as a type of custodial account designed to hold and protect assets for the beneficiary. The donor can appoint themselves, another person, or a financial institution in the role of custodian. The custodian鈥攚ho has a fiduciary duty to manage the account in the beneficiary's best interest鈥攃an use the funds to buy stocks, bonds, mutual funds, and other securities on behalf of the minor. UGMAs are usually limited to these sorts of publicly traded financial assets; they cannot invest in speculative instruments, like derivatives, or buy on margin.

UGMA accounts can be opened through a bank or brokerage institutions. Friends and family can make contributions to the accounts, which carry no contribution limits or income limits. These deposits are irrevocable鈥攖hey become permanent transfers to the minor and her account.

Typically, UGMA assets are used to fund a child鈥檚 education, but the donor can make withdrawals for just about any expenses that benefit the minor. There are no withdrawal penalties. However, because UGMA assets are technically owned by the minor, they do count as assets if they apply for federal financial aid for college, possibly decreasing their eligibility.

Once they reach the age of majority in their state, minors are granted full access to their UGMA account. At that point, they may use the funds as they please.

Special Considerations

Contributions to UGMA accounts are made with after-tax dollars鈥攖he donor doesn't receive an income tax deduction for making them. However, up to $15,000 per individual ($30,000 for a married couple) can be contributed free of gift tax.

For federal tax purposes, the minor or beneficiary is considered the owner of all assets in a UGMA account and the income they generate. But these accounts' earnings can be taxed either to the child or the parent. Reporting requirements depend on the amount of income the account generates and the beneficiary鈥檚 age.

Under certain circumstances, parents can elect to report their children鈥檚 UGMA accounts on their own tax returns, thereby taking advantage of the

This means that if the child鈥檚 unearned income, including UGMA earnings, was less than $2,100 in 2019 and he or she was no older than 19 (or 24 if a full-time student) at the end of the corresponding tax year, parents can elect to report their child鈥檚 income on their own tax return. In this case, the first $1,050 of the child鈥檚 unearned income is tax-free. The next $1,050 is taxed at the child鈥檚 tax rate. Anything exceeding $2,100 is taxed at the parents鈥 tax rate. If such an election is not made or if the child鈥檚 unearned income exceeded $2,100 at the end of the tax year, the minor would have to file a tax return subject to 鈥渒iddie tax鈥 rules.

For tax purposes, a UGMA affects a donor鈥檚 lifetime gifting limits. Should a donor acting as the custodian die before the custodial property is transferred to the minor, the entire custodial property is included in the donor's taxable estate.


UGMA and the Uniform Transfers to Minors Act (UTMA) are usually used interchangeably, but the two do have some distinctions. Custodial accounts set up under the newer UTMA, which dates from 1986, can contain any kind of tangible or intangible asset, including real estate, works of art, and intellectual property. In contrast, UGMA accounts are limited to financial assets, such as cash, stocks, bonds, and insurance products (policies, annuities).

All states permit UGMA accounts. Vermont and South Carolina currently do not allow UTMA accounts (as of Jan. 2020).