UTMA Accounts: A Problem for Individuals With Disabilities
Uniform Transfers to Minors Act (UTMA) accounts are popular, inexpensive tools for gifting assets to children. Grandparents, parents, and other relatives often use them to set aside money for education or future needs without the expense of a formal trust. But for our clients with disabilities, UTMAs impact essential government benefits such as Supplemental Security Income (SSI) and Medicaid. When we learn that a client has an UTMA account, we take steps to address it carefully to ensure benefit eligibility is protected.
What is an UTMA Account?
UTMA accounts are custodial accounts created under Illinois law that allow an adult (the custodian) to hold and manage assets for a minor. While the custodian controls the account, the child is the legal owner of the funds from the moment the account is created, and the account is titled using the child’s Social Security number. UTMA accounts can hold cash or securities.
Importantly, UTMA gifts are irrevocable. Once assets are transferred into the account, they cannot be reclaimed, redirected, or restricted by the donor. At age 21, the account is turned over to the beneficiary outright, and the funds become fully available to the now-adult individual to use however they wish.
Why UTMA Accounts Are Problematic
UTMA Accounts are problematic when funds are become available to the beneficiary at age 21). At that time, the funds are counted as a resource for means-tested benefits like SSI and Medicaid. In 2026, the resource limit is $2,000; assets that exceed this limit can lead to denial or loss of benefits. Note that before age 21, SSA does not count UTMA funds as a resource because they are unavailable to the beneficiary.
UTMAs Cannot Be Easily “Fixed” Once Established
- UTMA accounts are irrevocable, and once established, the funds cannot be transferred out of the account.
- At 21, the funds are available to the beneficiary and will require his or her consent and cooperation to transfer the funds into a legally approved solution.
- If the beneficiary is under a guardianship, an “estate” must be opened, and the court may require a hearing to approve a transfer, and the establishment of an OBRA Trust, which could take months.
- OBRA Trusts (also known as 1st Party Special Needs Trusts, or Medicaid Pay Back Trusts) as well as ABLE accounts are solutions but implementing them and correcting the issue with SSA and Medicaid can take considerable time to implement.
- Moving funds to all other accounts is an improper transfer of resources under Social Security rules.
- While the UTMA is a resource, SSI payments are suspended ($994 per month!)
If Your Child Has an UTMA…
Don’t panic; there are legal remedies to safely transfer these funds and preserve benefits – but they can be complex and costly if not caught early. The key is to identify the issue early and notify your attorney as soon as you become aware of it. The longer an UTMA goes on beyond the 21st birthday, the more significant the financial consequences.
Early planning with informed professionals like your friendly team at Clancy & Associates can help avoid costly benefit disruptions. Remember, the safest way for your child to receive a gift is through a third party Special Needs Trust.
—KC