What Is a CUTMA Account and How Does It Work?

A Uniform Transfers to Minors Act (CUTMA) account serves as a straightforward legal and financial mechanism for individuals to gift assets to minors. This type of account provides a way to transfer wealth to a younger beneficiary without the complexities often associated with establishing a formal trust. Its purpose is to facilitate asset transfers to minors, ensuring assets are managed on their behalf until they reach a specified age.

Key Features of CUTMA Accounts

A CUTMA account is a legal arrangement based on state-level legislation that allows assets to be held for the benefit of a minor. This legal framework outlines how assets can be transferred and managed until the minor reaches the age of majority. The structure involves three primary parties: the donor, who is the individual making the gift; the custodian, responsible for managing the assets; and the minor, who is the beneficiary of the account.

The custodian holds legal title to the assets within the CUTMA account, managing them on behalf of the minor until the minor attains a certain age, 18 or 21, depending on the state’s Uniform Transfers to Minors Act. Once assets are transferred into a CUTMA account, the gift is considered irrevocable, meaning the donor cannot reclaim the assets. A wide range of assets can be held within these accounts, including cash, securities like stocks and bonds, mutual funds, real estate, and even intellectual property.

Establishing a CUTMA Account

Opening a CUTMA account is a process facilitated through financial institutions such as banks or brokerage firms. These institutions provide the necessary forms and guidance for establishing the account.

To establish the account, the donor must provide their personal information, including their full legal name and contact details. The chosen custodian’s full legal name and contact information are also required, along with the minor beneficiary’s full legal name and date of birth. Details regarding the specific assets intended for transfer into the account must be provided on the forms.

Managing a CUTMA Account

Once a CUTMA account has been established, the custodian assumes fiduciary duties, acting solely in the minor’s best interest. This responsibility includes prudently investing the assets held within the account to promote growth and preserve capital. The custodian is also tasked with maintaining records of all transactions, including contributions, withdrawals, and investment activities.

Income generated by the account, such as dividends and interest, is reinvested back into the account or used for the minor’s direct benefit. Such benefits might include expenses related to education or healthcare, provided these expenditures align with the minor’s needs and the custodian’s fiduciary obligations. The custodian must manage the portfolio in accordance with general investment guidelines, avoiding speculative ventures and ensuring that CUTMA assets are never commingled with their personal funds.

Tax Considerations for CUTMA Accounts

CUTMA accounts involve several tax implications, primarily concerning the income generated by the assets held within them. Income such as interest, dividends, and capital gains is taxed to the minor beneficiary. However, this taxation often falls under what is known as the “kiddie tax” rules, which are designed to prevent higher-income individuals from shifting investment income to children to avoid higher tax rates.

Under the kiddie tax rules, for the 2025 tax year, the first $1,350 of a minor’s unearned income is tax-free. The next $1,350 is taxed at the child’s own marginal tax rate. Any unearned income exceeding $2,700 is then taxed at the parents’ marginal income tax rate. This rule applies to dependent children under the age of 18 at the end of the tax year, or to full-time students between 19 and 23 who do not provide more than half of their own support.

Regarding gift tax implications for the donor, transfers into a CUTMA account are considered completed gifts. Donors can utilize the annual gift tax exclusion to make tax-free contributions up to a certain limit each year. For 2025, this annual exclusion amount is $19,000 per recipient. Married couples can effectively double this amount to $38,000 per recipient if they elect to split gifts. Gifts exceeding this annual exclusion reduce the donor’s lifetime estate and gift tax exemption, which is $13.99 million per individual for 2025.

Account Termination and Asset Transfer

A CUTMA account terminates and transfers its assets to the beneficiary once the minor reaches a specific age, which is defined as the age of majority in the state where the account was established. This age ranges from 18 to 21 years old. The precise age of transfer is determined at the time the account is initially set up.

Upon the minor reaching the specified age, the custodian’s final responsibilities include providing a comprehensive accounting of all assets and transactions that occurred during the custodianship. Following this, the custodian must formally transfer all assets held within the account directly to the now-adult beneficiary. If the minor beneficiary dies before reaching the age of majority, the assets held within the CUTMA account pass to the minor’s estate.