In many families, parents or grandparents open savings accounts for a child to use later in life. Many families save for college through regular savings accounts. But custodial accounts such as UTMA and UGMA accounts have certain tax advantages that regular accounts don’t have. If you are looking for a tax-advantaged way of transferring wealth to your children, you may want to consider a custodial account.

The Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) were created to offer a method of transferring funds from an adult to a minor, and a method for minors to own financial instruments.

When you save for college through a custodial account, you own and control the account until your child becomes of age. The “age of majority” for the child ranges from 18-21 and varies by state

The adult who opened the account maintains control over the money until the child comes of age.

Custodial accounts also carry a small tax advantage.

Now the downside. When the child comes of age, the money officially belongs to the child. The child may then use the money for education (as was the adult's original intent), or for any other purchase that the child chooses to make. The parent no longer has legal control over the money. That’s a big one.

Even though the parents maintain control over the account, they can’t just dip into it as they wish. The money in a custodial account may only be withdrawn for the benefit of the child. There are stiff tax penalties for misuse of these funds.

The second problem comes up when you apply for financial aid. The money is counted as one of the child's assets. When calculating financial aid, a child's assets are counted at a higher rate than are the parents' assets, impacting the amount of financial aid the child may receive.

Finally, the value of the account is included in the donor’s estate if the donor is the custodian of the account.