Gifts to Kids - Pennsylvania and the Uniform Transfers to Minors Act

Mother watching daughter count coins from piggy bank
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Contrary to popular belief, a parent does not have legal authority to manage a minor’s property. A minor is “legally incompetent,” which means that a minor can’t make enforceable contracts or otherwise engage in commercial activities on his or her own. The age of majority in most states is 18.

Minor Children and Property

Minor children come by property in different ways. Some earn money working.  Some receive gifts from grandparents and other family members. Some receive inheritances. Others are injured and have claims to make against others. 

Money or property can be put in a minor’s name. That is not a problem; the problem is that the minor then cannot do anything with it. Withdrawals can’t be made. Investment changes can’t be made. Money can’t be used.

Legal Guardian

The only way legal authority can be obtained to use or manage the minor’s assets is by court appointment of a legal guardian. This is an expensive and cumbersome procedure. Good planning will avoid it. The court often appoints a parent, but not in every case. The court-appointed guardian must make frequent reports to the court, ask for permission to spend principal, and has limited authority to decide how the property should be managed. Even if the route of seeking appointment of a legal guardian is taken, the age of majority in Pennsylvania is eighteen (18), and the child has full power over the assets upon attaining that age.

Alternative to a Legal Guardian

The Uniform Transfers To Minors Act (UTMA) is a uniform act drafted and recommended by the National Conference of Commissioners on Uniform State Laws. Every state, except South Carolina, has adopted a version of the Act (South Carolina has the old Uniform Gifts to Minors Act). Under UTMA a custodian can hold a property for a minor, invest it, and use it for the minor’s benefit. The court is not involved. The person is transferring money to the minor names the custodian. The custodian’s function is similar to a trustee for the minor.

Under some states’ version of the statute, the property can be held until the minor attains at least age 21 (three years longer than the age of majority). 

Using UTMA is as simple as titling the asset appropriately. You don’t have to go to a lawyer. There is no separate document. The asset is titled: “Jane Doe as Custodian under the New York (name of your state) UTMA for the benefit of John Jones.” The Custodian then is the legal title holder and can deal with the asset. The law is very liberal as to what expenditures can be made so long as the expenditures are not made to fulfill the custodian’s obligation to support his or her children.  The minor is entitled to distribution of the funds in most cases at age 21.

Distribution of Funds

The Uniform Act allows wills, trusts and beneficiary designations to include the deferral of the distribution age up to age 25.  Check with counsel to see if your state adopted this provision. To specify an age later than the default age, you must change the wording of the custodianship language in the will, trust or beneficiary designation form to Adult Smith “as custodian for Minor Smith until age 25 under the [name of your state] Uniform Transfers to Minors Act.”

The delayed age (25) distribution date is not available for gifts. These transfers are still to be distributed at age 21. This is necessary in order for gifts to UTMA accounts for minors to qualify for the Internal Revenue Code’s $14,000 annual exclusion for gifts of present interest.

The practical value of UTMA is considerable. Parents can set up a stock or mutual fund account under UTMA, and then grandparents and uncles and aunts can make gifts to the account (or to the parent for deposit in the account). For income tax purposes, the assets in a UTMA account belong to the minor. The account uses the minor’s social security number. All income is reportable on the minor’s own 1040 and PA-40. Investing in low-income, high growth investments is an attractive way to manage these funds.


Taxes would have to be paid on any income as it is earned if income exceeds the child’s standard deduction plus another small sum. The income over this deduction amount for children under age 14 is taxed at the parent’s rate. These days the return on a stock is heavily weighted on the side of growth; that is, the price per share increases, while cash dividends are low. The equity value compounds untaxed until the stock is sold.

UTMA also provides a very useful tool for making bequests to minors. Grandmother can leave a bequest in her will to minor grandchildren, naming a custodian to hold the funds for them until age 21. This is a very efficient and economical way to carry out grandmother’s intent. Wills should contain provisions authorizing the appointment of custodians whenever there is a possibility that a distribution could be made to a minor.  If the will contains no authorizing language, a distribution up to $10,000 (this number varies by state) may be made to a custodian by the executor, but the executor cannot use UTMA for larger amounts without seeking court approval unless authorized in the will.


If insurance policies or retirement plans name minors as beneficiaries or contingent beneficiaries, the beneficiary designations should include the appointment of a custodian to receive the funds under UTMA. Otherwise, a court-appointed guardian will be required to receive the funds on the minor’s behalf.