The Uniform Transfers to Minors Act (UTMA) is one of the most well-known and successful of the uniform acts, adopted in all 50 states plus the District of Columbia and the US Virgin Islands. UTMA accounts are widely used to transfer property to a custodian to manage for the benefit of a minor. Nearly every bank and brokerage firm in the United States offers UTMA accounts to its customers as an easy way to create a custodial account in accordance with any state UTMA statute.
The UTMA has a lesser-known cousin for adult beneficiaries. In the 20 jurisdictions where it has been adopted, the Uniform Custodial Trust Act (UCTA) provides a similarly simple way to create a custodial account for the benefit of an adult. It is designed to provide a statutory inter vivos trust for individuals who are typically not affluent and do not need a more extensive estate plan. The act allows adults to transfer property to a custodial trust to benefit themselves or others. The grantor designates a custodian and optional successors to manage the property for the adult beneficiary or beneficiaries.
A custodial trust has many potential uses. It could provide for the future management of assets in the event of the adult beneficiary’s incapacity. It could also allow a parent of a developmentally disabled adult child to provide for the child’s future needs. It could even be a vehicle for someone serving in the military or temporarily leaving the country to place property with a custodian for management without giving up beneficial ownership.
The process for creating a UCTA account will be familiar to anyone who has set up a UTMA account for the benefit of a minor. The owner of the property simply transfers it to a custodian “as custodial trustee for (name of beneficiary) under the (name of State) Uniform Custodial Trust Act.” Different types of transfers to custodians are allowed, including by will, trust, deed, or designation in an insurance policy.
Like a UTMA account, a UCTA account is registered using the beneficiary’s tax ID number, and any income, including capital gains, is taxed to the beneficiary. Both the UTMA and UCTA similarly protect third parties who deal with custodians and limit the liability of custodians and beneficiaries.
But there are also some important differences. Unlike a UTMA account, which automatically terminates upon the beneficiary’s attainment of a specified age (usually 18 or 21 years), a UCTA account has an indefinite duration. An adult beneficiary with the legal capacity to make decisions may order termination of the custodial trust at any time, as can a conservator for an adult beneficiary who subsequently becomes subject to conservatorship.
Adult beneficiaries under the UCTA can also direct the custodian in managing their property, and custodians must keep good records and account to the beneficiaries at least annually. Without any direction, the custodian must manage the custodial property under the prudent investor standard but is not limited by any other legal restrictions placed on fiduciaries.
UCTA accounts may not be appropriate for complex estates or affluent persons. Still, they provide a valuable alternative to a living trust for others without access to comprehensive estate planning services.
UCTA accounts are currently available in the twenty jurisdictions that have adopted this uniform law, as shown on the map on this page. Other states may consider enacting legislation to provide this option.
