Many grandparents want to leave more than memories—they want to help shape their grandchildren’s future. Whether that means funding college, encouraging good saving habits, or giving a financial head start, grandparents in Greenwood often ask us at Vick Law how they can make gifts in a smart, lasting way.
One option is a custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These accounts make it possible to transfer assets to a grandchild while keeping oversight until they reach adulthood. But before opening one, it’s important to understand both the benefits and the drawbacks.
What Are UGMA and UTMA Accounts?
UGMA and UTMA accounts are custodial investment accounts that allow minors to legally own assets. You, the grandparent, can transfer money, stocks, or even real estate (UTMA only) into the account. A trusted adult—called the custodian—manages it until the child turns 18 or 21, depending on state law.
The custodian must use the money for the child’s benefit, but once the child reaches the age of majority, they gain full control. At that point, they can use the funds however they wish—whether for college, a car, or something else entirely.
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UGMA accounts: Limited to financial assets like cash, stocks, and bonds.
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UTMA accounts: Broader scope—can include real estate, royalties, patents, or even art.
Tax and Financial Aid Considerations
While UGMA and UTMA accounts can be appealing, grandparents should consider the following:
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Irrevocable gifts. Once you contribute, the assets legally belong to the child—you can’t take them back.
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Taxes. Investment income is subject to the “kiddie tax.” Some income may be tax-free or taxed at the child’s lower rate, but higher earnings could be taxed at the parents’ rate.
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College aid impact. Custodial accounts count as a student’s asset on FAFSA and other financial aid applications. That means they reduce aid eligibility more than accounts owned by parents.
If education savings is your main goal, a 529 plan may be more efficient.
When Do UGMA or UTMA Accounts Make Sense?
These accounts work best for modest gifts—enough to help with early expenses like summer programs, study abroad, or a first vehicle. They’re simple to set up, require no trust paperwork, and can teach children about saving and investing.
However, if you’re planning to give larger gifts or want to maintain control over how the money is used, other tools—such as a revocable living trust, irrevocable trust, or 529 plan—may be better. Trusts allow you to set specific rules, limit how and when funds are distributed, and protect your gift well into adulthood.
Why Work with Vick Law in Greenwood, Indiana
At Vick Law, 3209 W. Smith Valley Rd., Suite 113, Greenwood, IN 46142, we regularly help grandparents choose the right way to pass on wealth. For some, a simple custodial account works. For others, a trust or blended approach ensures the gift lasts and truly benefits the grandchild.
We’ll walk you through:
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The pros and cons of UGMA, UTMA, 529 plans, and trusts
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How to minimize taxes while maximizing impact
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How to protect your gift if your grandchild isn’t ready to manage money responsibly
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How to align your giving with your broader estate plan
Key Takeaways for Grandparents
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UGMA and UTMA accounts let you transfer assets to a grandchild with adult oversight until they turn 18 or 21.
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Control is limited. Once the child reaches adulthood, they can use the money however they wish.
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Tax and aid rules matter. Custodial accounts may affect financial aid and trigger kiddie tax rules.
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Consider trusts for larger gifts. Trusts and 529 plans provide more flexibility and long-term control.
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Align your giving with your values. Use your gift to teach financial responsibility and secure your legacy.
How to Get Started
Gifting to grandchildren is one of the greatest joys of being a grandparent. But the right planning ensures your generosity doesn’t create unexpected problems.
Book a consultation call today. Call Vick Law in Greenwood, Indiana today at (317) 593-9853 to schedule a consultation and learn how to use estate planning tools to bless your grandchildren—and protect your family legacy.
Reference: Fidelity Investments (Jan. 16, 2025) “Must-know facts about UGMA/UTMA custodial accounts”
