Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) Accounts
Custodial accounts for minors are set up according to either the Uniform Gifts to Minors Act or the later Uniform Transfers to Minors Act, depending on state where the account is opened. UGMA/UTMA accounts are set up by a parent or other donor to save money for a minor for future needs of many sorts. They can be used to provide money for college, although other accounts are much more useful for that purpose.
An UGMA/UTMA account is a custodian account that is opened by an adult who manages it for a minor. An alternative to this type of account for a minor is a trust, but an UGMA/UTMA account is simpler and less expensive to set up. There can be only one custodian and one minor for each account. The minor and custodian do not need to be related, but the custodian must be an adult and must be a person, not a corporation. The minor is the legal owner of the account and its assets (the beneficial owner), and the custodian (the nominal owner) is responsible for managing the account. The minor must have a social security number and will be taxed on the earnings of the account.
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