Custodial Accounts

Under the Uniform Transfer to Minors Act (UTMA)

Many parents and grandparents would like to set aside money to save for a child's or grandchild's future. One easy way to accomplish this is with a custodial account established under the State of Alaska Uniform Transfers to Minors Act. Also known as an UTMA account, an adult custodian establishes the account on behalf of a minor and controls and invests the money in the account.

What Is The UTMA?

The Uniform Transfers to Minors Act (UTMA) is a law adopted by the state of Alaska, allowing the irrevocable transfer of gifts (e.g. money) to a child through a custodial account. UTMA accounts provide a simple means for adults to transfer money to a child, without the child controlling the money while still a minor. Under UTMA rules, transfers to a child are placed in an account in the name of an adult as custodian for the child.

How Do UTMA Accounts Work?

At the inception of a UTMA account, an adult or the Trust Company can be designated to serve as custodian to oversee and invest the money in the account for the benefit of the child. Funds contributed to a UTMA account are considered irrevocable gifts and cannot be withdrawn for the benefit of the custodian or anyone else other than the child.

Upon termination of the custodianship, the custodian transfers the funds to the child. Termination of a UTMA account is generally made when the child reaches the "age of termination." In Alaska, that age is 21. However, at the time the account is established, an alternate termination date may be selected. This date may not be before the child attains the age of 18 nor after the age of 25.

Advantages of a UTMA Custodial Account

Simple: A UTMA account provides many of the advantages of a formal trust account, without the complexity and expense.

Tax Advantages: Donors may be able to lower their income taxes by transferring income-producing assets to a child, as donations may qualify for the annual gift tax exclusion for each child. Ownership of the assets rests with the child, and the child is subject to income tax on the earnings or gain. UTMA accounts may also be used to reduce the size of a donor's taxable estate.

Automatic Transfers: Additional funds can be added at any time to a UTMA account. Regular contributions can be established for automatic transfer on a designated date from any Alaska USA or other financial institution account.

Control: The custodian has sole and complete control of the funds in the account. The child does not have access to the account for withdrawal or any other purpose. Upon reaching the age of termination, as specified when the account is established, the funds must then be transferred to the child.

Things to Consider

Irrevocable Gifts: The money transferred to a UTMA account may only be used to benefit the child. Upon reaching the age of termination, the funds are transferred to the child, who then has complete discretion of how the money is used.

College Financial Aid: The amount of college financial aid available for a child may be reduced because the money within a UTMA account belongs to the child. Federal financial aid formulas generally require that the child spend a portion of their money towards their college education prior to securing financial aid.

Designating Successor Custodians

For UTMA accounts, it is a good idea to appoint a successor custodian, that is, someone to serve as custodian in the event the current custodian resigns, dies, or becomes incapacitated. A custodian at any time may designate another adult or Alaska USA Trust Company as successor custodian.