UTMA UGMA Restrictions Placed on Custodians
There may be an instance where a parent, grandparent, aunt or other family member decides to gift assets to a minor. In order for the minor to accept some of these gifts, the custodian (donor) may be required to set up an UGMA or an UTMA account. While most states (except South Carolina and Vermont) have adopted UTMA rules, the restrictions on both types of accounts as they apply to the custodian are the same.
Custodian as fiduciary - when an adult makes a financial gift to a minor using the a Uniform Gifts to Minors Account (UGMA) they are agreeing to act in a fiduciary capacity. This means that they are agreeing that the amount of funds that are deposited to the account are considered an irrevocable gift to the minor;
Account setup - the adult is responsible for setting up UGMA and UTMA accounts. However, these accounts are set up with the social security information for the minor. The reason behind this is that the minor owns the account and the earnings on these accounts are taxable at the child's rate and not the custodian's rate;
Custodian deceased - in the event that the custodian of a minor's account dies, the account becomes part of their estate. However, this does not change the ownership of the funds in the account, it merely means the estate will be responsible for the taxes on the amount and for appointing a new custodian;
Use of funds - the custodian may be required to submit a letter of intended use along with a liquidation request for a minors account. This letter would typically state that the funds are being used for the minor to whom the account is registered. Once the minor reaches the age of distribution, the minor is free to liquidate the account and use it for any purpose they deem appropriate.