Many clients at Clarity Legal Group want to give gifts to children or grandchildren as part of their estate plan. One simple option is a custodial account under the Uniform Transfers to Minors Act (UTMA), a tool widely used in North Carolina. These accounts make it easier to transfer money or property to a child without setting up a full trust.
What Is the Uniform Transfers to Minors Act?
The Uniform Transfers to Minors Act (UTMA) lets you name an adult custodian to manage the assets for a minor until they reach adulthood—typically age 21. UTMA replaced the older Uniform Gifts to Minors Act (UGMA), which worked in a similar way but with more limited options. UTMA allows for a broader range of assets, including real estate, and provides longer oversight based on state laws.
A custodial account created under UTMA or UGMA is considered an irrevocable gift. Once the assets are transferred, they belong to the child and must be used for the benefit of the minor.
Pros and Cons of Using an UGMA or UTMA Account
These accounts are easy to set up. They can hold things like cash, stocks, mutual funds, and in some cases, real estate. But they aren’t right for every family. Here are a few reasons why:
- The child gains full control of the money at the age of majority. That means no limits on how they spend it.
- Income from the account may be subject to the kiddie tax, which can apply a higher tax rate to unearned income.
- The account counts as the child’s asset, which may reduce eligibility for college financial aid.
If the child is not ready to manage money at 21, this can create real problems. Many parents find that financial maturity comes later—sometimes not until age 35.
How the Custodian Manages the Account
The adult custodian must act in the child’s best interest. They can only use the funds for things that directly benefit the minor. These expenses include school, medical care, or daily needs. Once the child reaches the legal age, the custodian must hand over full control.
This loss of control is one reason some families explore other planning tools.
Why Trusts Offer More Control
If you want more say in how and when money is used, a trust might be better. Trusts let you:
- Set detailed rules for how the beneficiary spends the money.
- Delay full access until the child is older or meets certain goals.
- Protect the gift from divorce, creditors, or lawsuits.
A trust also gives you peace of mind that your values will guide how the gift is used.
Choosing the Right Option for Your Family
Every family is different. That’s why it’s important to talk with someone who can explain your options clearly. At Clarity Legal Group, we’ve helped many families choose between a uniform gift to minors account and more structured planning like trusts.
We serve families throughout Chapel Hill, Raleigh, and Durham, as well as Orange, Chatham, Wake, Durham, Johnston, and Franklin counties. Whether you’re thinking about a small gift or a large legacy, we’re here to help.
Plan with Confidence
Estate planning isn’t just about the paperwork. It’s about making good decisions for your loved ones. If you’re considering an UGMA or UTMA custodial account and wondering if a trust might be a better fit, contact Clarity Legal Group today at 919-484-0012 or schedule a consultation.
This post was originally published in 2021 and was updated May 2025
