The Uniform Gifts to Minors Act (“UGMA”), or the Uniform Transfers to Minors Act (“UTMA”), both provide ways for an adult to leave money to a minor by way of statute.

In general, an adult will usually have to hire an attorney to create a special trust to be able to set aside money for a minor. The reason for this is because a contract will not be considered legally enforceable when one of the parties to it is a minor. The UGMA and UTMA permit an adult to skip this step by automatically setting up the trust for a minor by their provisions.

The UGMA and/or the UTMA avoid the need for making a contract with a minor by laying out instructions in their guidelines that provide a procedure for transferring assets to a minor. In other words, these Acts offer a simple and straightforward way for a minor to inherit assets.

There are two primary differences between these Acts. The first is that while every state has adopted the UGMA, not every state has adopted the UTMA. Thus, the UTMA only applies in certain states.

The second difference between the two has to do with what types of assets they transfer. The UGMA only allows transfers that are purely financial in nature, such as cash, bonds, and stocks. The UTMA on the other hand can transfer any type of property, including cash, real estate, or the title to a car.

Finally, as of 2020, the only state that does not recognize the UTMA is the state of South Carolina. However, it is always best to double-check your particular state’s set of laws to confirm that nothing has changed.

Does the Money Automatically Go to a Minor, or Does Someone Else Hold onto it Until the Minor Turns of Age?

An important thing to note about the UGMA and UTMA is that neither of these Acts allow a minor to be granted the money in an account until they have reached the age of majority in a particular state (usually either 18 or 21 years of age). Instead, a custodian will be responsible for prudently managing the account funds until the minor reaches the appropriate age.

Once the minor becomes an adult, they will then be allowed to claim the inheritance even if the custodian does not want them to or forbids it.

As mentioned, the custodian will need to manage the funds in a prudent manner. This may mean doing things like switching the funds between various UGMA accounts for better benefits. For instance, a custodian might notice that certain UGMA accounts provide more perks than the type that the assets are currently held in, such as online access to monitor an account.

If this is the case, the custodian will have the power to switch the funds from the current UGMA account to the other UGMA account that offers greater advantages.

Is There a Way to Delay or Restrict When a Minor Will Get Access to the Funds?

As discussed above, once a minor becomes an adult, generally neither the donor nor the custodian can prevent them from having complete control over the funds. There is only one way in which a person may be able to delay or restrict them from doing so.

If the legal age for an adult is 18 in a state, then the donor may be able to delay the minor from gaining access to the account or receiving the funds until they turn 21 years old. However, this delay can only occur if the donor has expressly stipulated that condition when the account was first created.

Other than this one exception, there is no way to prevent a minor from receiving the funds once they have reached the age of majority in that state.

In addition, there is also no method in which a donor or custodian can restrict the minor’s use of the funds once they become an adult. If the donor wishes to impose such restrictions on the minor, then the donor should not be using a UGMA account. Instead, the donor should establish a trust fund that will allow the donor to make such restrictions over the funds.

Do I Need to Consult an Attorney When Setting Up a UGMA or UTMA Account?

One of the benefits to using a UGMA/UTMA account (as opposed to the other kinds of trust funds you can choose from), is that you do not need an attorney to set these types of accounts up because the Acts do it for you. However, you must bear in mind that as the 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 consider contacting a local estate attorney for further advice. An experienced estate attorney can tell you what type of account may be best for your situation and can discuss options regarding when you would like the minor to gain access to funds, including any restrictions you want to place on the account.