South Carolina UTMA Accounts: Custodian Duties, Taxes, and Aid

A South Carolina UTMA account is a custodial arrangement, authorized by Title 63, Chapter 5 of the South Carolina Code, that lets an adult hold and manage an irrevocable gift of property for a minor without setting up a formal trust. The child is the legal owner from the moment of transfer; the custodian manages the assets until the account terminates at age 18 or 21, depending on how the transfer was made. For most family gifts, no court filing or approval is required.

Opening the Account

You start by choosing a bank, credit union, or brokerage that offers custodial accounts. The custodian supplies their own identifying information along with the minor’s Social Security number, and a straightforward gift transfer needs no court involvement.

Titling is the step people get wrong. South Carolina law requires the account or asset to be registered in the custodian’s name, followed by “as custodian for [minor’s name] under the South Carolina Uniform Transfers to Minors Act.”¹ That exact phrasing, or something substantially similar, must appear on the account registration, deed, brokerage statement, or insurance policy. Register it incorrectly and you may not have a valid UTMA transfer at all.

Each transfer names one minor and one custodian. All property the same custodian holds for the same minor is treated as a single custodianship, no matter how many separate deposits you make.² To benefit two children, you open two accounts.

What You Can Put Into a UTMA Account

South Carolina places no restrictions on the type of property. Cash, stocks, bonds, mutual funds, real estate, life insurance policies, annuity contracts, and interests in tangible personal property all qualify, and S corporation stock can be held as well.¹

Every asset that goes in is an irrevocable gift to the minor.³ You cannot take the property back, redirect it to another child, or change your mind later. The minor owns it the instant the transfer is made.

When the Account Terminates

The termination age depends on the source of the transfer, and the donor cannot pick a custom age. Gift transfers and transfers authorized by a will or trust end when the minor turns 21. Transfers made by a fiduciary without specific donor authorization, or by someone like an insurer or debtor paying money owed to the minor, end at 18, which is South Carolina’s general age of majority.⁴ If the minor dies first, the custodianship ends and the property passes to the minor’s estate.

At the termination age, the custodian must hand over every remaining asset. There is no discretion to hold back funds, stretch out payments, or attach conditions. The former minor gets everything at once. If the custodian delays, the beneficiary can go to court to compel the transfer and recover any losses caused by the delay.

The Custodian’s Duties

A custodian takes control of the property, registers or records title correctly, and manages investments as a prudent person would when handling someone else’s money. A custodian with genuine financial expertise is held to a higher standard and must apply it.⁵

The custodian can spend account funds for anything that benefits the minor: education, medical care, housing, activities, whatever serves the child. No court order is required, and the analysis does not depend on whether the parents could otherwise afford the expense.⁶ What the custodian cannot do is treat the account as their own. No reimbursements for personal expenses, no using the funds for the custodian’s own support, no commingling with personal accounts.

Records and Inspections

The custodian has to keep transaction records detailed enough to prepare the minor’s tax returns, and custodial property must stay clearly separate from the custodian’s own assets. Once the minor turns 14, the minor can inspect those records at reasonable intervals. A parent or legal representative can inspect at any time.⁵ Poor bookkeeping is one of the easier ways a custodian ends up facing a fiduciary-duty claim after the beneficiary grows up.

Naming a Successor Custodian

The custodian can resign at any time by giving written notice to a successor custodian, and to the minor if the minor is at least 14, then delivering all property and records to that successor.⁷

The better move is to name a successor in advance. A custodian can designate any adult other than the original transferor, or a trust company, by signing and dating a written instrument in front of a witness. That designation stays dormant until the custodian resigns, dies, or becomes incapacitated.⁷

When no successor is named and the custodian dies or becomes incapacitated, South Carolina applies a fallback chain:

If the minor is 14 or older, the minor can designate a successor: an adult family member, the minor’s conservator, or a trust company.
If the minor is under 14, or does not act within 60 days, the minor’s conservator automatically becomes successor custodian.
If there is no conservator, or the conservator declines, the transferor, the legal representative of the transferor or custodian, an adult family member, or any other interested person can petition the court to appoint one.

Every step in that chain adds cost and delay. A written successor designation at the outset avoids all of it.⁷

Taxes on a UTMA Account

Because the minor legally owns the assets, investment income is taxed to the child under the federal kiddie tax rules. For 2026:

The first $1,350 of unearned income is not taxed, covered by the child’s standard deduction.
The next $1,350 is taxed at the child’s own rate, usually very low.
Anything above $2,700 is taxed at the parent’s marginal rate.

The $2,700 threshold applies for tax year 2026.⁸ A child with unearned income above that amount must file Form 8615 with their return.⁹ A child filing Form 8615 may also owe the 3.8% net investment income tax if modified adjusted gross income clears the applicable threshold.

Parents get a shortcut when the numbers are small. If the child’s gross income for 2026 is only from interest, ordinary dividends, and capital gain distributions and totals less than $13,500, the parents can report it on their own return using Form 8814 instead of filing a separate return for the child.⁸

Gift Tax

Contributions to a UTMA account are gifts for federal tax purposes. For 2026, you can give up to $19,000 per recipient per year without filing a gift tax return. Married couples who elect gift-splitting can give $38,000 per recipient. Contributions above the annual exclusion require IRS Form 709, but no tax is actually owed until cumulative lifetime gifts exceed the $15 million 2026 basic exclusion amount.¹⁰ South Carolina imposes no state gift tax and no state estate tax.¹¹

Effect on Financial Aid

UTMA accounts carry a hidden cost that surprises many families at college application time. On the FAFSA, custodial money counts as the student’s asset, not the parent’s. Student assets reduce financial aid eligibility at up to 20% of the account value; parent assets are assessed at a maximum of 5.64%. A $50,000 UTMA balance raises the student’s expected contribution by $10,000, roughly four times the hit from the same amount held in a parent’s account.

There is no clean way to reclassify UTMA funds as a parent asset. Because the minor owns them, the custodian cannot simply move the money to a parent-owned account. One partial workaround is rolling UTMA cash into a UTMA-designated 529 plan, which stays legally owned by the minor but may be treated more favorably under some institutional aid formulas. That rollover requires liquidating the UTMA investments first, which can trigger capital gains subject to the kiddie tax, and the minor still takes full control at the termination age.

UTMA Account vs. 529 Plan

Families saving for a child’s education often weigh a UTMA account against a 529 education savings plan. The core tradeoff is flexibility versus tax advantage.

Spending restrictions. UTMA funds can pay for anything that benefits the minor while the account is open, and anything at all after termination. A 529 plan gives tax-free withdrawals only for qualified education expenses, including tuition, fees, room and board, books, and up to $10,000 per year in K-12 tuition. Non-qualified withdrawals trigger income tax and a 10% penalty on earnings.
Account control. UTMA assets belong to the minor and cannot be redirected. With a 529, the account owner (typically a parent) keeps control indefinitely, can change the beneficiary to another family member, and is never legally required to hand the account over.
Tax treatment. A 529’s investment gains grow tax-free when used for qualified expenses. UTMA investment income is taxed to the minor each year under the kiddie tax rules above.
Financial aid. A parent-owned 529 is reported as a parent asset (assessed at up to 5.64%); a UTMA account is reported as a student asset (assessed at 20%).
Contribution limits. Neither has a statutory maximum, but both are subject to the $19,000 annual gift tax exclusion for 2026. The 529 offers a five-year gift-averaging election that lets you contribute up to $95,000 in a single year without gift tax consequences, provided you make no other gifts to that recipient for the next five years.

If the goal is strictly education funding, a parent-owned 529 is almost always more tax-efficient and less damaging to financial aid. A UTMA account is the better fit when you want to give a child a broader head start, whether that ends up being a first car, a business, a down payment, or something else entirely.

1
South Carolina Legislature. South Carolina Code Title 63 Chapter 5 Section 63-5-645 – Manner of Creating Custodial Property and Effecting Transfer
2
South Carolina Legislature. South Carolina Code Section 63-5-650 – Single Custodianship
3
South Carolina Legislature. South Carolina Code Title 63 Chapter 5 Section 63-5-620 – Transfer by Gift or Exercise of Power of Appointment
4
South Carolina Legislature. South Carolina Code Section 63-5-700 – Termination of Custodianship
5
South Carolina Legislature. South Carolina Code Title 63 Chapter 5 Section 63-5-660 – Care of Custodial Property
6
South Carolina Legislature. South Carolina Code Title 63 Chapter 5 Section 63-5-670 – Use of Custodial Property
7
South Carolina Legislature. South Carolina Code Section 63-5-690 – Renunciation, Resignation, Death, or Removal of Custodian and Designation of Successor Custodian
8
Internal Revenue Service. Revenue Procedure 2025-32
9
Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
10
Internal Revenue Service. Whats New – Estate and Gift Tax
11
South Carolina Department of Revenue. Moving to SC Guide