How does an UGMA/UTMA custodial account work?
An UGMA/UTMA custodial account is a special type of account that allows a minor child to legally hold money or other property, such as stock or real estate, that the child would not otherwise be able to hold in his or her own name. It’s governed by a particular state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Most states have enacted an UTMA because it allows for more types of property to be held in the account, and the account can remain open longer than with an UGMA. A custodial account can easily be opened at a bank or other financial institution using a common form. Central to the operation of a custodial account is the custodian, who is responsible for contributing money or property to the account, managing these assets, and withdrawing from the account when necessary. Typically, the custodian is the parent, but it’s possible for another person or even a bank (for a fee) to act as the custodian. Custodial accounts have several unique features.