These Acts are common ways to leave money to a minor. The UGMA sets up a trust automatically for the minor by way of statute instead of using an attorney to draw up a trust. Usually a minor cannot be part of a legally enforceable contract in any state. However, the UGMA gets around any need for making a contract with a minor by laying out in a statute the procedures for transferring securities to a minor. Essentially, these Acts offer a straightforward way for a minor to inherit securities.
Does the Money Automatically Go to the Minor, or Does Someone Else Hold it Until the Minor Turns of Age?
The UGMA and the UTMA do not allow a minor to be granted the money until he has reached the age of an adult in that state (either 18 or 21). Until then, a custodian handles the money in a "prudent manner." Once the minor becomes an adult, he can claim the funds even if the custodian does not want him to.
One other way a custodian can handle the money in a "prudent manner" would be by switching the funds between various UGMA accounts. The custodian might notice that a certain UGMA account may give better benefits, such as online access, than the account the funds are currently placed in. If this is the case, the custodian has the power to switch the funds from the current UGMA account to another UGMA account.
Once the minor becomes an adult, neither the donor nor the custodian can prevent him for having complete control over the funds. If the legal minimum age of an adult is 18 in the state, the donor may be able to delay the minor from receiving the money until he is 21 if the donor expressly stipulates that condition when the account is created.
Other than that, there is no way to prevent a minor from receiving the funds once he has reached the age of majority in that state. Neither is there any way of restricting the minor’s use of the funds once he becomes an adult. If the donor wishes to impose such restrictions on the minor, the donor should not use a UGMA account but rather establish a trust fund that allows the donor to establish such restrictions.
Actually, part of the benefit of a UGMA over other kinds of trust funds is that you do not need an attorney to set it up. However, you must keep in mind that as a donor to a UGMA, you will have very limited control over the account, especially once the minor becomes an adult. Therefore, you may want to consult an estate attorney who has experience dealing with trust funds, and discuss how and when exactly you would like the minor to gain access to the funds, including any restrictions you would like to put on the use of the funds.