The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) are sometimes called the “granddaddies” of college savings accounts. Both allow parents to establish custodial accounts for a minor child, and a grandparent can then make gifts to the account.
When planning for the future of one’s grandchildren, many are looking for ways to assist in the increasing costs of continuing education. Have you considered giving the gift of college funding to your grandchildren?
A recent piece in ElderLawAnswers.com titled “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?” examined the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). Typically, these tried-and-true “granddaddies” of college savings accounts are established by parents on behalf of their children, and then the parents and grandparents can make gifts to the accounts to create a college fund.
As with any financial plan, look before you leap. For example, “uniform” is something of a misnomer when it comes to UGMA and UTMA. These uniform acts are merely templates which various states may or may not adopt—after making some state-specific changes. For instance, some states restrict the types of assets that can be used to fund the accounts.
One potential drawback is the length of time the accounts remain “custodial” under the watchful eye of the adult custodians. Once the grandchild reaches the age of majority (18 to 21, again in accordance with applicable state law), the newly minted “adult” can do as they please with the account.
So, will the hard-earned savings of parents and grandparents actually be spent on the intended educational expenses after there are no more strings attached?
Reference: ElderLawAnswers.com (updated July 9, 2013) “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?”