A grandparent establishes a UGMA custodial account for a 10-year-old grandchild and names herself as custodian. Which statement about this account is TRUE?
- AMultiple custodians may be named on the account to share investment decision-making
- BControl of the account must transfer to the minor at the age of majority, and the gift is irrevocable
- CThe custodian may revoke the gift and reclaim the assets if the grandchild misuses them
- DIncome generated in the account is taxed to the custodian, not the minor
Show answer & explanationAnswer & explanation
Correct answer: B. Control of the account must transfer to the minor at the age of majority, and the gift is irrevocable
Under the Uniform Gifts/Transfers to Minors Act, gifts made to a custodial account are irrevocable, and the custodian must manage the assets solely for the minor's benefit until the minor reaches the age of majority (as defined by state law), at which point control transfers to the now-adult beneficiary. Only one custodian and one minor are permitted per account, and income is generally taxed to the minor (subject to kiddie tax rules).
Why the other options are wrong
- A. Incorrect — only one custodian and one minor beneficiary are allowed per UGMA/UTMA account.
- C. Incorrect — gifts to UGMA/UTMA accounts are irrevocable; the custodian cannot reclaim them.
- D. Incorrect — income is taxed to the minor (subject to kiddie tax provisions), not the custodian.
UGMA/UTMA Custodial Account
A custodial account holding gifted assets irrevocably for a minor, managed by a single custodian until the minor reaches the age of majority, at which point control transfers to the beneficiary.
- Gifts are irrevocable once made
- Only one custodian and one minor per account
- Income taxed to the minor, subject to 'kiddie tax' rules on unearned income
Memory trick: Once gifted, it's locked — control passes to the child at majority.