Custodial Accounts (UGMA/UTMA)
Accounts an adult custodian manages for a minor under the Uniform Gifts/Transfers to Minors Acts: one custodian, one minor, gifts are irrevocable, the minor's Social Security number is used, and assets transfer at the age of majority.
The exam loves that one adult can be the donor AND the custodian of the same account — that combo is allowed — but it punishes the one-custodian, one-minor limit: a stem showing two minors or two custodians is the wrong answer. Watch for the classic “can the custodian trade on margin or write options?” stem — the answer is no, because the account must stay cash-only and non-speculative (short sales are off-limits too). Another favorite: assets are registered in the custodian’s name as custodian for the minor, taxed under the minor’s SSN, and held as the minor’s irrevocable property.
Don’t confuse the irrevocable custodial gift with the revocable, owner-controlled flexibility of a personal cash or margin account, and don’t blur it with retirement accounts — an IRA needs the owner’s own earned income, while a custodial account needs none (anyone can gift in). Versus JTWROS/TIC joint accounts, a custodial account has exactly one beneficial owner — the minor — so no survivorship or estate-transfer logic applies. Memory hook: UTMA = “Ultimate” — more asset Types, later Age than UGMA.
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