The Uniform Transfers to Minors Act (UTMA) expanded on the Uniform Gifts to Minors Act allowing all kinds of property such as bonds, real estate, and art to be transferred to minors and was adopted by most states. UTMA allows the property to be gifted to a minor without establishing a formal trust. The donor or a custodian manages the property for the minor’s benefit until the minor reaches a certain age. Once the child reaches a specified age set by the state, the child will have full control over the property. Gifts to the minor are exempted up to $15,000 a year from Federal taxes, but the minor will be required to pay taxes beyond this amount. Also, UTMA transfer allows the gift to be taxed based on the minor’s tax rate. A downside of the UTMA is that it can reduce or make a minor ineligible for financial aid since the property is owned by the minor.
[Last updated in August of 2021 by the Wex Definitions Team]