A UTMA account in New York lets you make an irrevocable gift of money or property to a child without setting up a formal trust, with an adult custodian managing the assets until the child turns 21. New York’s version of the Uniform Transfers to Minors Act sits in EPTL Article 7, Part 6, and it defines a “minor” as anyone under 21, which is older than the cutoff in most states.1New York State Senate. New York Estates, Powers and Trusts Law 7-6.1 – Definitions That longer runway is useful, but it also means the tax, financial-aid, and fiduciary decisions you make at the start follow the account for two decades.
How to Open the Account
Opening a UTMA is mechanically simple. Pick a bank or brokerage, name a custodian, give the minor’s Social Security number, and fund the account. The account title has to identify the custodian, the minor, and the governing statute so the funds are protected under the Act. Most institutions offer UTMA accounts at no extra cost and accept cash, stocks, bonds, mutual funds, or even real estate.
The person putting money in (the “transferor”) does not have to be the person managing the account. Anyone can make a gift transfer under EPTL § 7-6.4 by irrevocably transferring property to a custodian for the minor’s benefit.2New York State Senate. New York Estates, Powers and Trusts Law 7-6.4 – Transfer by Gift or Exercise of Power of Appointment Fiduciaries such as personal representatives or trustees can also make transfers under EPTL § 7-6.6, provided they determine the transfer is in the minor’s best interest; amounts above $50,000 from an intestate estate require court approval.3New York State Senate. New York Estates, Powers and Trusts Law 7-6.6 – Other Transfer by Fiduciary
The Transfer Is Permanent
Once money goes in, it belongs to the child. You cannot pull it back, move it to a sibling, or change the beneficiary. The statute treats every contribution as an “irrevocable gift,” and courts read that literally.2New York State Senate. New York Estates, Powers and Trusts Law 7-6.4 – Transfer by Gift or Exercise of Power of Appointment The custodian can spend money on the minor’s behalf while the account is open, but nobody can reclaim the funds for themselves. If your plans change, unwinding a UTMA is difficult and may require going to court, so decide on your contribution amount deliberately.
What the Custodian Can and Cannot Do
A New York UTMA custodian holds roughly the same authority over the account that an adult owner would have over their own property, but only for the minor’s benefit.4New York State Senate. New York Estates, Powers and Trusts Law 7-6.13 – Powers of Custodian You can buy and sell investments, collect income, and pay expenses without court approval for individual transactions.
EPTL § 7-6.12 requires the custodian to manage the property with the care a prudent person would use handling someone else’s assets, and it holds custodians who claim investment expertise to a higher standard based on that skill.5New York State Senate. New York Estates, Powers and Trusts Law 7-6.12 – Care of Custodial Property Custodians can delegate investment functions the same way a trustee can.
Keep custodial funds in a separate account and never mix them with personal money. Track every contribution, investment decision, and withdrawal. Good records protect you if the minor later challenges your management, and they make the final handover much cleaner.
You can spend from the account for the minor’s benefit during the custodianship: tuition, medical bills, extracurricular activities, and similar expenses. A custodian who is also the child’s parent should be careful about using UTMA money for expenses the parent is already legally obligated to cover, such as food, clothing, and basic shelter. That use can create tax problems and defeats the point of the account.
Name a successor custodian at the beginning and keep the designation current. EPTL § 7-6.18 lets a custodian name a successor by signing a dated written instrument, and the successor must be a trust company or an adult who was not the original transferor.6New York State Senate. New York Estates, Powers and Trusts Law 7-6.18 – Renunciation, Resignation, Death, or Removal of Custodian Without a designation, filling a vacancy can require action by the minor, a guardian, or the Surrogate’s Court.
How Much You Can Contribute
There is no statutory cap on UTMA contributions, but federal gift tax rules set a practical ceiling. For 2026, each donor can give up to $19,000 per recipient per year without filing a gift tax return or using any lifetime exemption.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Married couples can double that to $38,000 by gift-splitting.
Contributions to a custodial account qualify for the annual exclusion even though the minor cannot touch the money until the custodianship ends. Anything above the exclusion from a single donor in one year requires filing Form 709 and counts against the donor’s lifetime gift and estate tax exemption. Grandparents, aunts, uncles, and family friends can each give up to the exclusion independently, which makes UTMA accounts a workable way to pool gifts from multiple relatives.
How the Account Is Taxed
Because the account legally belongs to the minor, investment income is reported under the minor’s Social Security number. The “kiddie tax” then limits how much of that income actually gets taxed at the child’s low rate.
The 2026 Kiddie Tax Tiers
For 2026, the first $1,350 of a child’s unearned income (interest, dividends, capital gains) is covered by the dependent’s standard deduction and owes no tax. The next $1,350 is taxed at the child’s own rate. Any unearned income above $2,700 is taxed at the parent’s marginal rate.8Internal Revenue Service. Revenue Procedure 2025-32 – Inflation Adjusted Items for Tax Year 2026 For a high-earning parent, that top tier can mean federal rates of 35% or more on the child’s investment income.
A child’s return must include Form 8615 whenever unearned income exceeds $2,700 and the child is under 18, under 19 if not self-supporting, or under 24 if a full-time student. If the child’s only income is interest, dividends, and capital gain distributions totaling less than $13,500, parents can instead elect to report it on their own return using Form 8814.9Internal Revenue Service. Topic No. 553 – Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
Capital Gains and Trading Frequency
Short-term capital gains on assets held less than a year are taxed as ordinary income and run through the kiddie tax tiers. Long-term gains get preferential rates, but the parent’s rate still applies to the portion above $2,700. Custodians who trade actively can inadvertently push more income into the top tier. A buy-and-hold approach often produces better after-tax results, and deferring sales until the child is past the kiddie tax age can save real money.
New York State Reporting
UTMA income included in the minor’s federal adjusted gross income also has to be reported to New York. The minor may need to file a New York resident return (Form IT-201) if income exceeds the state filing threshold. Handle both federal and state filings each year the account produces taxable income to avoid penalties and interest.
The Effect on College Financial Aid
A UTMA account can meaningfully cut a student’s financial aid, and families often miss this. On the FAFSA, custodial accounts count as a student asset, and the federal formula assesses up to 20% of student assets as available for college each year. Parent-owned assets like 529 plans are assessed at a maximum of 5.64%. A $50,000 UTMA balance could reduce aid eligibility by roughly $10,000 per year, while the same amount in a parent-owned 529 plan would reduce it by about $2,820.
The CSS Profile, used by many private colleges, is more aggressive, assessing student assets at 25%. Income earned inside the UTMA also counts as student income on the FAFSA and is assessed at 50%. Families expecting to apply for need-based aid should think about spending down the account on qualifying expenses before the student’s sophomore year of high school, since that is when the tax years used for aid reporting begin.
Do Not Name Yourself Custodian if You Funded the Account
If you both fund the UTMA and serve as its custodian, the entire account balance can be pulled into your taxable estate if you die before the custodianship ends. Under federal tax rules, property you transferred during life is included in your gross estate if you kept the power to control who benefits and when.10eCFR. 26 CFR 20.2038-1 – Revocable Transfers A UTMA custodian’s discretionary control over distributions is exactly the kind of retained power the IRS has argued triggers inclusion.
The fix is to name someone else as custodian: a spouse, a grandparent, or another trusted adult. If you already opened an account with yourself in both roles, you can designate a successor and resign under EPTL § 7-6.18 to close the exposure going forward.6New York State Senate. New York Estates, Powers and Trusts Law 7-6.18 – Renunciation, Resignation, Death, or Removal of Custodian On a large account, that single change can save tens of thousands in estate taxes.
When the Account Ends
The termination age depends on how the property got into the account. For gift transfers under § 7-6.4 and transfers authorized by a will or trust under § 7-6.5, the custodianship ends when the minor turns 21. For transfers by other fiduciaries under § 7-6.6 or § 7-6.7, it ends at 18.11New York State Senate. New York Estates, Powers and Trusts Law 7-6.20 – Termination of Custodianship Most UTMA accounts are funded through direct gifts, so 21 is the usual answer. If the minor dies before termination, the custodian transfers the property to the minor’s estate.
At termination, the custodian hands over everything left in the account. There is no discretion to hold back funds because the young adult seems unready. Prepare a final accounting covering contributions, gains and losses, distributions, and fees over the life of the account, and settle any outstanding tax liabilities before the transfer so the new adult is not stuck with a surprise bill.
That mandatory handover is the biggest structural drawback of a UTMA compared with a formal trust, which can delay distribution to any age the grantor picks. If you are worried about a young adult receiving a large sum with no strings attached, a trust may be the better vehicle to start with.