Financial Gifts for Grandchildren in Jacksonville: Understanding UGMA and UTMA Accounts

Making financial gifts to your grandchildren is a generous and thoughtful way to invest in their future. In Jacksonville, many grandparents are turning to UGMA and UTMA accounts as tools to transfer wealth while helping minimize taxes and prepare younger generations for financial success. But what exactly are these accounts—and how do they work?

What Are UGMA and UTMA Accounts?

UGMA stands for the Uniform Gifts to Minors Act, while UTMA refers to the Uniform Transfers to Minors Act. These laws allow adults to create custodial accounts for a minor child. Parents, grandparents, and even family friends can contribute funds or assets into these accounts.

At their core, both account types make it easier to give financial gifts to children without setting up a formal trust. Once the money or assets are transferred, they legally belong to the child—though an adult manages the account until the child comes of age.

UGMA vs. UTMA: What’s the Difference?

• UGMA accounts generally accept only financial assets such as cash, life insurance, and certificates of deposit.
• UTMA accounts allow a broader range of assets, including stocks, bonds, mutual funds, real estate, and even artwork.

The main difference is in the types of gifts each account can hold. UTMA accounts are more flexible, which may suit families with diverse assets.

How Do These Accounts Work?

Once a custodial account is opened, it’s tied to a specific child. While the adult (known as the custodian) manages the account, they must do so for the child’s benefit. The account can receive unlimited contributions from anyone—parents, grandparents, aunts, uncles, or family friends.

Tax Benefits for the Grandparents

One of the key advantages of UGMA and UTMA accounts is tax efficiency. The income generated in these accounts is taxed at the child’s rate, which is usually lower than that of the contributing adult.

• The first $1,250 of income may be tax-free.
• The next $1,250 is taxed at the child’s rate.
• Income over $2,500 (in 2025) is taxed at the parent or grandparent’s rate.

This setup can reduce the overall tax burden, especially when compared to keeping these investments in the donor’s own name.

Considerations Before Giving Financial Gifts to Grandchildren in Jacksonville

Age of Control

In Florida, custodial accounts must be transferred to the child when they reach age 21. At that point, the child has full control—and can spend the money however they choose. This could be for education, travel, starting a business—or something less productive. Once the transfer happens, the original donor has no say in how the money is used.

Impact on Financial Aid

Because the assets are technically the child’s, they may count against them when applying for college financial aid. These accounts are considered the child’s property and may reduce eligibility for need-based aid.

If this is a concern, some families choose to liquidate the UGMA or UTMA account and transfer the proceeds into a 529 college savings plan, which offers greater financial aid protection and additional tax advantages.

Should You Consider a Trust Instead of a Custodial Account?

For families seeking greater control over how and when a child accesses funds, a trust may be the better option. Trusts allow you to set specific terms, such as age thresholds or conditions for withdrawals (e.g., only for college tuition or home purchase). While more complex and costly to set up, trusts offer greater long-term flexibility and protection.  A qualified trust attorney can help you decide whether a trust is best for your family situation.  Read more about trusts.

However, for simpler situations or smaller gifts, UGMA and UTMA accounts offer a low-cost, straightforward solution—especially if your goal is to make a meaningful gift now that can grow over time.

Is a Custodial Account Right for Your Grandchild?

Here are a few questions to consider:

• Do you want to make tax-smart financial gifts for your grandchildren in Jacksonville?
• Are you comfortable with your grandchild gaining full control at age 21?
• Would you prefer a quick setup without hiring an attorney to draft a trust?
• Are you okay with some possible impact on their college financial aid?

If you answered yes to most of these, a UGMA or UTMA account might be a great fit. 

Planning Ahead With Legacy Planning Law Group

At Legacy Planning Law Group, we believe that every financial gift is a legacy in the making. Whether you’re planning for birthdays, graduations, or long-term wealth transfer, we’ll help you decide the right strategy for your family. Read more on planning for loved ones with special needs in our blog, How Do I Plan for a Loved One with Special Needs?

Our approach is simple: make the process easy to understand, comfortable to navigate, and tailored to your goals. We’re here to answer questions and guide you through every step, ensuring that your gift creates the impact you envision.

Reference: Fidelity (Jan. 16, 2025) Must-know facts about UGMA/UTMA custodial accounts