A custodial account is an account established at a financial institution for the benefit of a minor child and managed by the parent or another designated custodian. The custodial account is established under a particular state's Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). Under this type of savings vehicle, the child is recognized as the owner of the account (different from a 529 or Coverdell plan), but the custodian (who can be you) controls the investments until the child reaches the age of majority. No separate legal forms or trust documents are required to establish the account.
Key features include: Large contributions - Transfers to custodial accounts may qualify for the annual $12,000 federal gift tax exclusion for individuals, $24,000 for couples. If you transfer more than this in a year to the same individual, you may owe gift tax Typical investments - Many states have liberalized the categories of funding permitted in UGMA/UTMA accounts, including life insurance1, cash, securities and land Anyone can contribute - Once the account is established, there is no limit on who can fund it Control of funds - Until the child reaches the age of majority (subject to state regulations), assets in the account can be used by the custodian for almost any reason for the child's benefit, and the custodian has control over how the money is invested. Once the child reaches the age of majority, the custodian no longer has control over how the funds are invested or used and the custodian must transfer the assets to the beneficiary Irrevocable - The child is the owner of the assets and the assets placed is these accounts are irrevocable. The custodian may not change the child for whom the account benefits nor transfer the assets to an account where the child is a beneficiary but not an owner
There are many benefits when using UGMA/UTMA accounts to fund a child's education, such as the potential tax benefits of transferring highly appreciated securities into the account. However, there are disadvantages to using this versus a 529 College Savings Plan or Coverdell Education Savings Plan, such as the potential reduction of Financial Aid to the child.
At UBS, we can help you sort through the pros and cons so you can decide if a UGMA or UTMA account is suitable for your education funding and/or estate planning needs. Talk to a UBS Financial Advisor today. | 
