New York's Uniform Transfers to Minors Act (UTMA) allows a single custodian to manage the funds of a minor until the beneficiary reaches a certain age. UTMA accounts are easy to create, inexpensive, and allow a parent to create a fund that the minor can only access once he or she reaches an age of suitable financial responsibility. However, once the minor does reach a suitable age (21 in most cases), then all assets in the UTMA account must be placed in her complete control.
Investing in a UTMA
Any type of fund or monetary instrument can be invested in a UTMA account. Available options include (but are not restricted to) stocks, bonds, mutual funds, stakes in limited liability corporations (LLCs), cash, and certificates of deposit. The diversity of available funding instruments is the primary difference between UTMA and a Uniform Gift to Minors Account (UGMA), which can only be funded with life insurance payments, cash, and certificates of deposit.
Withdrawing from a UTMA
All withdrawals from a UTMA must be made by the custodian listed on the UTMA account. This is the case even after the beneficiary has reached the age of majority. At that point, the custodian is legally required to perform any transactions that are requested by the beneficiary, up to and including complete dissolution of the UTMA account. Any funds that are withdrawn by the custodian prior to the minor reaching majority age must be used for the purpose of funding for the minor or the minor is entitled to seek legal action against the custodian.
Age of majority
For the purpose of controlling funds in a UTMA, the state of New York considers 21 to be the age of majority. At that point, the beneficiary is entitled to do anything he wishes with all funds in the account. If the account was initiated before January 1, 1997, then the minor is entitled to the funds at age 18.
Taxation of UTMA interest income
If a minor's interest income plus dividends total more than $1,900 in one year, then the account will be subject to the Kiddie Tax. A portion of the minor's UTMA interest income will be taxed at the tax rate of his or her parents or legal guardian instead of the lower tax bracket that the child would have been in. This law is in place to ensure that parents do not use UTMA accounts as a means of circumventing income tax.