Gifts to Minors: UTMA and UGMA Custodial Accounts, and Control at Majority

Is money put in a child’s UTMA or UGMA account a gift?

Yes. A transfer to a custodial account is an irrevocable gift to the child, who owns the property from that moment. For 2026 the first $19,000 a donor gives a child during the year is excluded from taxable gifts if the gift is not a future interest (IRC § 2503(b); Rev. Proc. 2025-32).

Under § 2503(c), a transfer for someone under 21 is not a future interest when the property can be spent for the child, passes to the child at 21, and goes to the child’s estate if the child dies first. A custodian manages the account until the age set by the state’s Uniform Transfers to Minors Act, and then the child controls it outright.

How a custodial account works

Custodial accounts are created under state law. The older statute is the Uniform Gifts to Minors Act (UGMA); the Uniform Transfers to Minors Act (UTMA) replaced it in most states and widened it to cover any kind of property, where UGMA covered cash and securities. Each state enacts its own version and may modify it. The Social Security Administration’s operations manual summarizes the common provisions (POMS SI 01120.205):

• The donor makes “an irrevocable transfer of money or other property to a minor.”
• The property and its income are under a custodian’s control until the minor reaches the age set by state law.
• The custodian has discretion to pay to the minor, or spend for the minor’s use and benefit, as much as the custodian considers appropriate.
• The minor receives control automatically at the age set by state law.

State statutes say the same thing in their own words. Florida’s act, used here as one example, provides that a transfer “is irrevocable, and the custodial property is indefeasibly vested in the minor,” while the custodian holds the powers to manage it (Fla. Stat. § 710.113(2)).

Qualifying for the annual exclusion

The annual exclusion applies only to gifts of a present interest, and a gift a child cannot touch for years looks like a future interest. Congress addressed this in § 2503(c). No part of a gift to a person under 21 is treated as a future interest if the property and its income:

• may be spent by, or for the benefit of, the child before age 21;
• to the extent not spent, pass to the child at 21; and
• if the child dies before 21, are payable to the child’s estate or as the child appoints under a general power of appointment.

A custodianship that ends by 21 is built around the same three features. In the Florida example, the custodian may spend the property for the minor’s use and benefit (§ 710.116), and must turn it over to the minor at the stated age or to the minor’s estate on the minor’s death (§ 710.123).

Where a state allows custodianship beyond 21, the fit with the second condition needs attention. Florida lets a donor extend a custodianship to 25, but gives the minor “the absolute right to compel immediate distribution of the entire custodial property” at 21 (§ 710.123(2)); the donor may provide that this right ends after a fixed period following written notice (§ 710.123(3)). The treatment of a delayed custodianship in another state depends on that state’s statute.

A gift to a child that does not meet § 2503(c) is tested under the ordinary present-interest rules (Treas. Reg. § 25.2503-4(c)).

The § 2503(c) trust alternative

The same statutory test can be met with a trust written for one child, usually called a § 2503(c) trust or minor’s trust. It takes a trust document and a trustee, and in exchange gives the donor more say over investment and distribution terms. The regulation allows two features that matter in practice: the trustee may be given discretion over how much to spend for the child, as long as the trust places no substantial restrictions on that discretion, and the child may be given the right to extend the trust on reaching 21 (Treas. Reg. § 25.2503-4(b)).

A third route is a trust with withdrawal rights, which is not limited to age 21; see Crummey powers. A contribution to a 529 plan is treated as a present-interest gift by its own statute; see 529 superfunding.

Control passes at the state-set age

The age at which the custodianship ends is set by each state’s statute, not by federal tax law, and it varies. It can also differ within one state depending on how the property was transferred. In Florida, for example, the age is 21 for property given by gift, 18 for certain other transfers, and 25 if the donor so provides, subject to the minor’s right to demand the property at 21, which the donor may limit to a fixed period after written notice (Fla. Stat. § 710.123). Check the governing state’s statute, or ask the institution holding the account, for the age that applies.

At that age the custodian’s role ends. The property is delivered to the former minor with no conditions, and neither the donor nor the custodian can require that it be used for education or anything else. That loss of control is a common reason families consider a trust instead.

The estate-tax issue when the donor is the custodian

A donor who also serves as custodian keeps a power over property he or she gave away. The estate tax reaches transferred property whose enjoyment was subject, at the donor’s death, to change through a power held by the donor “in whatever capacity exercisable” to “alter, amend, revoke, or terminate” (IRC § 2038(a)(1)). The regulation applies the section to “any power affecting the time or manner of enjoyment of property or its income, even though the identity of the beneficiary is not affected,” and gives the example of a power to accumulate income or distribute it, and to distribute principal, to a beneficiary whose interest is vested (Treas. Reg. § 20.2038-1(a)).

A custodian’s discretion over when and how much to pay out to the minor is, on its terms, a power of that kind. If the donor is the custodian and dies before the custodianship ends, the account can be included in the donor’s gross estate even though the gift was complete. If someone other than the donor is custodian, and the donor has no power to remove the custodian and take the role, the power is not the donor’s (Treas. Reg. § 20.2038-1(a)(3)). Inclusion matters only for estates large enough to owe estate tax; see the lifetime-exemption page.

Income tax: the kiddie tax

Because the child owns the account, its interest, dividends, and gains are the child’s income. Above a threshold, a child’s unearned income is taxed at the parent’s rate when that rate is higher (IRC § 1(g)). The threshold is two times an inflation-adjusted base amount for a child who does not itemize deductions. For 2026 the base amount is $1,350 (Rev. Proc. 2025-32), so the rule generally applies to unearned income above $2,700. The IRS materials for 2025 returns state the same $2,700 figure (IRS Topic No. 553; Instructions for Form 8615).

The rule applies to a child who is required to file a return and who is:

• under 18 at the end of the tax year;
• 18 at the end of the tax year, with earned income that is not more than half of his or her support; or
• a full-time student at least 19 and under 24, with earned income that is not more than half of his or her support.

At least one parent must be alive at the end of the year, and the tax is figured on Form 8615.

Reporting

A gift to a custodial account is reported like any other gift to the child. Gifts from one donor to one child that total $19,000 or less in 2026 and qualify for the exclusion require no gift-tax return. A larger gift requires Form 709, and the excess reduces the donor’s lifetime exemption. Married donors can use both spouses’ exclusions through gift-splitting, which itself requires a return. Tuition and medical bills paid directly for a child are not gifts and do not count against the $19,000; see paying tuition or medical bills. The return is covered on the Form 709 page.

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