What You Need to Know Before Your Child Takes Control of Their UGMA or UTMA Account

Maybe it started with a birthday check from a grandparent, or the initial savings of a college fund. For years, you have been the one to make decisions for your children’s UGMA or UTMA accounts. But sooner or later, these accounts will be transferred to them.

UGMA and UTMA stand for the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). One or both of those acronyms are often associated with custodial accounts.

A custodial account is managed by you but owned by your child. When they reach the transfer age set by state law, usually 18 or 21, your role as custodian ends and they take full legal control. This is an irrevocable gift. Your approval is not required, and the transfer cannot be reversed.

This may feel daunting at first: you may not know the specific details of how the handoff works, how to tell your children about these accounts, and how to best help them manage this resource. But while the transfer date is fixed, your readiness is something you build. Preparation is the difference between handing over an account and handing over a foundation for your child’s financial life.

In this article, we will look at how UGMA/UTMA accounts work, what the implications are, and how to best prepare your children for this transition.

UGMA vs. UTMA: What Kind of Account Do You Have?

Both UGMA and UTMA accounts are custodial accounts: an adult manages the assets, but the child owns them. They are great financial vehicles to save on a child’s behalf or to give as a financial gift.

A UGMA account holds financial assets such as cash, stocks, bonds, and other portfolio assets. A UTMA account can hold those portfolio assets plus other property, including real estate.

UGMA accounts often transfer at the state’s age of majority, which is usually 18. UTMA accounts transfer commonly at 21. To understand the exact dates of your custodial accounts, speak to a financial advisor and look through your account setup details. Keeping these ages in mind will help you prepare for your account handoff in advance.

How to Prepare Yourself: From Decision-Maker to Guide

For years, every decision about this account has been yours. Soon they will be in the hands of your children. This shift can be easier if you begin considering the changes it will bring in the financial decision-making process.

For one, the account’s earnings have always been taxed to your child, and under the kiddie tax, investment income above a set threshold ($2,700 for 2026)^[1] is taxed at the parents’ rate. This rule can continue to apply to full-time students into their early twenties. Once your child takes control and begins to sell their investments, capital gains can apply as well. While this detail may not be relevant today, it is worth knowing the broad outline.

Another area of impact may be financial aid for education. Financial aid formulas count a custodial account as the student’s own asset, and student assets weigh more heavily than parent assets. If college is part of your child’s roadmap, consider how custodial accounts may affect their financial aid calculation.

The most important aspect for you to consider is the purpose of the account: was it meant for education, a first home, a head start on investing? A clear story about the origination and intent of the account can help your children better understand the meaning behind the money.

How to Prepare Your Child: From Beneficiary to Owner

So far, your child has been the beneficiary of this account. But becoming the owner and manager of these financial assets calls for a different mindset. Creating the space to have conversations around intentions, perspective, and the right management skills will help your child ease into this transition.

Start simple with facts: the account exists, here is what it holds, and on this date it becomes yours to manage. Helping your child understand the basics can establish a good foundation for learning management skills.

Walk them through a statement together. Explain why the account is invested the way it is, and what it means when markets rise and fall. A little familiarity now helps them envision what it will be when they take full charge of the assets.

Encourage independent thinking. Your child may already have ideas about how to use the assets. Encourage them to think about the pros and cons of their decisions, and the short-term and long-term effects: what this money can do today, and what it could become if part of it stays invested for ten or twenty years.

Independence does not mean isolation. Let your child know that asking for advice, from you or from a financial professional, is the path to a well-rounded financial future.

Preparing For a Shared Milestone

Your child’s transition into ownership of their custodial account is a family milestone. It may happen on a single day, but the journey starts long before it.

In a well-prepared handoff, you understand how the transfer affects taxes, college plans, and your own role. Your child knows what they own, has seen how it is managed, and has started thinking about their own goals for it.

If your child’s transfer date is approaching, Hightower Signature Wealth can help. Our advisors work with families to help them understand the full picture of their financial life. They can help you understand how UGMA/UTMA accounts work with the other areas of your finances, and help bring your children into these conversations.

Frequently Asked Questions

At what age does my child take control of a UGMA or UTMA account?

It depends on the state law the account was opened under. Most states end a UTMA custodianship at 21, some use 18, and a few allow a later age, in some cases up to 25, if it was chosen when the account was set up. Your account provider or financial advisor can confirm a more exact date.

How does a custodial account affect college financial aid?

Financial aid formulas treat a custodial account as the student’s own asset, which counts more heavily than a parent’s assets. If college is ahead, it is worth reviewing how the account fits into your overall plan.

What can I do if my child wants to spend the money differently than I intended?

Once the account transfers, the decision is theirs. Sharing the purpose behind the money early, and involving your child in decisions before the handoff, can help you both align on these decisions.

When should I start preparing my child for the handoff?

A year or two ahead is ideal. That leaves time for several short conversations, a look at the account together, and a gradual increase in responsibility. If the date is closer than that, starting now still makes a meaningful difference.

Sources:
^[1] https://www.nerdwallet.com/taxes/learn/kiddie-tax