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Difference between UGMA and UTMA

Difference between UGMA and UTMA

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) are two similar but different laws that govern how assets can be transferred to a child. UGMA allows an adult to give assets directly to a minor, while UTMA allows the transfer of assets into a custodial account that is managed by the child’s parent or guardian. While both laws allow minors to hold assets, there are some key differences between them. Here’s what you need to know about UGMA vs UTMA.

What is UGMA?

UGMA is an acronym that stands for Uniform Gifts to Minors Act. This act was established in 1986 and allows funds or other assets to be transferred to a minor without going through the probate process. UGMA accounts can be set up by parents, grandparents, or other adults who wish to gift money to a child. The money in the account can be used for the child’s education, housing, or other expenses. UGMA accounts are subject to taxation, and the child will assume control of the account when they reach the age of majority. For these reasons, UGMA accounts are often only used as a last resort after other options, such as 529 plans, have been exhausted.

What is UTMA?

The Uniform Transfers to Minors Act (UTMA) is a law that governs the transfer of property to minors. Under UTMA, the property can be transferred to a minor without passing through probate or guardianship proceedings. In addition, UTMA provides protection for the minor’s property from claims by creditors and lawsuits. The terms of UTMA vary from state to state, but in general, the act allows minors to receive gifts of money, real estate, and other assets without having to go through the legal process typically required for adults. As a result, UTMA can be a useful tool for parents and other adults who wish to transfer property to minors without incurring unnecessary expenses or delays.

Difference between UGMA and UTMA

UGMA and UTMA are two types of custodial accounts that allow minors to own assets. UGMA, or the Uniform Gifts to Minors Act, applies to gifts of cash or property. UTMA, or the Uniform Transfers to Minors Act, applies to transfers of property such as stocks, bonds, and real estate. UGMA accounts are simpler to set up and administer than UTMA accounts. However, UGMA account funds can only be used for the benefit of the minor; they cannot be used for college expenses or other purposes. UTMA account funds can be used for any purpose that the court deems to be in the best interest of the minor. As a result, UGMA accounts are generally more restrictive than UTMA accounts.

Conclusion

The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) are both designed to help parents or guardians give assets, such as cash, stocks, or real estate, to minors. There are some key differences between the two acts, which we will outline below. If you are considering giving assets to a minor child, it is important to understand which act applies in your situation.

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