A more thorough explanation:

The Uniform Transfers to Minors Act (UTMA) is a law that allows property to be transferred to minors without establishing a formal trust. This law expanded on the Uniform Gifts to Minors Act and was adopted by most states.

Under UTMA, all kinds of property such as bonds, real estate, and art can be gifted to a minor. The donor or a custodian manages the property for the minor’s benefit until the minor reaches a certain age. Once the child reaches a specified age set by the state, the child will have full control over the property.

For example, a grandparent can gift a piece of real estate to their grandchild under UTMA. The grandparent or a custodian will manage the property until the grandchild reaches a certain age, usually 18 or 21 depending on the state. Once the grandchild reaches that age, they will have full control over the property.

Gifts to the minor are exempted up to $15,000 a year from Federal taxes, but the minor will be required to pay taxes beyond this amount. Also, UTMA transfer allows the gift to be taxed based on the minor’s tax rate.

However, a downside of the UTMA is that it can reduce or make a minor ineligible for financial aid since the property is owned by the minor.