Know your UGMAs from your UTMAs

The Uniform Gift to Minors Act (UGMA) was created in 1956, and the associated accounts remain a lasting relic parents can use to financially set their kids up.

Uniform Transfer to Minors Act (UTMA) accounts are similar, though they have looser asset restrictions, meaning you can pass down real estate, art, and patents to your kids via UTMA accounts, while UGMAs only allow securities, cash, and insurance policies.

With both UGMAs and UTMAs, custodians can add and manage assets on behalf of the minor until the child reaches the age of majority.

And when we say relic, we mean relic. Compare UGMAs to other education account options. 529 accounts were created in the 1980s and Coverdell ESAs were created in 1997.

But just because they’re a bit older doesn’t mean they’re bad. They don’t restrict how the beneficiary can use the money. Income from the assets is usually taxed at the child’s tax rate, rather than the custodian’s. They’re also easier to set up than a trust fund.

The downside? The assets in the account ding the child’s financial aid prospects. This is because Junior’s assets are more heavily weighted on FAFSA applications than those in the parent’s name.—Myriam