The Gift of College Funding

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) are sometimes called the “granddaddies” of college savings accounts. Both allow parents to establish custodial accounts for a minor child, and a grandparent can then make gifts to the account.

When planning for the future of one’s grandchildren, many are looking for ways to assist in the increasing costs of continuing education. Have you considered giving the gift of college funding to your grandchildren?

A recent piece in ElderLawAnswers.com titled “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?” examined the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). Typically, these tried-and-true “granddaddies” of college savings accounts are established by parents on behalf of their children, and then the parents and grandparents can then make gifts to the accounts to create a powerful college fund.

Nevertheless, look before you leap. For example, “uniform” is something of a misnomer when it comes to UGMA and UTMA, since state law dictates the details. For instance, some states restrict the types of assets that can be used to fund the accounts. Accordingly, competent legal counsel is a must.

One important potential drawback is the length of time the accounts remain “custodial” under the watchful eye of the adult custodians. Once the grandchild reaches the age of majority (18 to 21, again in accordance with applicable state law), the newly minted “adult” can do as they please with the account. So, will the hard-earned savings of parents and grandparents be spent on consumerism or college tuition after the funds are cut loose?

In the end, like all things legal and financial, a cost-benefit analysis is required. While you are at it, consider educating the beneficiary of the fund about the purpose of the fund while it is being funded.

Reference: ElderLawAnswers.com (updated July 9, 2013) “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?”