The UTMA allows an adult (a person older than the age of majority in a state or country) to set up a custodial account for a minor, (a person under the applicable age of majority), who owns any assets placed in the account, although he or she can't legally control the account until reaching the age of majority. The UTMA is similar to the Uniform Gifts to Minors Act (UGMA) in many respects, but can be used to hold assets in addition to cash and securities, including real estate, fine art, antiques, patents, and royalties.
You may choose to transfer assets that you expect to increase in value into the UTMA account, so that any capital gains are retained in the account, and potential estate taxes that might have been due on the asset possibly can be avoided. See your tax professional for information on the taxation of gains in the account, because the rates of taxation may vary depending on the age of the beneficiary.
One potential disadvantage of a custodial account is that any gift to the account is irrevocable, and the assets become the property of the beneficiary from the moment they go into the account, even though as a minor he or she cannot legally control activity in the account or take money out. Upon reaching the age of majority, which occurs at 18, 19, or 21 depending on the state, the beneficiary may use the assets as he or she wishes.
To avoid owing potential gift tax, however, limiting amounts placed in the account each year to an amount that qualifies for the annual gift tax exclusion is recommended by many experts. In addition, if you are both the donor and the custodian, and die while the beneficiary is still a minor, the assets are considered part of your estate under current rules, which could make your estate's value large enough to incur estate taxes.