UTMA Account

Ambrosine asks to open a mutual fund account registered jointly between herself and her 13-year-old daughter Clemence, with right of survivorship. Her representative should tell her that:

1. A.a minor cannot be a joint owner, and a custodial account under the Uniform Transfers to Minors Act is the appropriate structure.Correct. Minors lack contractual capacity; UTMA is the standard alternative.
2. B.the account may be opened as tenants in common but not with right of survivorship.Changing the survivorship feature does not solve the capacity problem.
3. C.the account may be opened but Clemence may not give orders until she reaches the age of majority.The problem is ownership, not order-entry privileges.
4. D.the account may be opened so long as Ambrosine, as parent, signs on Clemence behalf.A signature by a parent does not confer capacity the minor does not have.

Why: A minor cannot enter into a binding contract, and a joint account depends on each owner having full legal capacity to give orders and to be bound by the account agreement. The account as requested cannot be opened. The appropriate structure is a custodial account under the state Uniform Transfers to Minors Act, in which Ambrosine acts as custodian, the assets belong to Clemence, and control passes to her at the age set by state law.

Assets in an UTMA custodial account:

1. A.Belong irrevocably to the minorCorrect - the gift cannot be taken back.
2. B.Can be reclaimed by the donor anytimeA gift to a UTMA is irrevocable the moment it is made, so the donor cannot take it back. Reclaiming the property would defeat the completed-gift treatment that gives the account its tax effect.
3. C.Belong to the custodianThe custodian controls the account and makes every investment decision, which is why this feels like ownership. Control and ownership are separate: the custodian holds a fiduciary role over property that belongs to the minor.
4. D.Are owned by the brokerageThe brokerage is a custodian holding the securities on the customer's behalf, never the owner. Client assets are segregated from firm assets precisely so that ownership stays with the minor.

Why: Gifts to an UTMA account are irrevocable and belong to the minor, who receives control at the age of majority.

An UTMA custodial account is characterized by...

1. A.A requirement that it be opened as a margin accountCustodial accounts are cash accounts; margin trading is not permitted.
2. B.Two joint custodians who share ownership of the assetsUTMA accounts have one custodian, and the custodian does not own the assets.
3. C.One custodian and one minor beneficiary, with the assets legally owned by the minorCorrect — an UTMA account has a single custodian managing assets that belong to a single minor.
4. D.Assets that may revert to the custodian at any timeGifts to an UTMA account are irrevocable; they cannot revert to the custodian.

Why: An UTMA account has one custodian who manages the assets and one minor beneficiary who legally owns them. Gifts to the account are irrevocable.

A client wants a modest death benefit to reach his nine-year-old grandson, but does not want the expense of drafting a trust. His producer suggests naming an adult as CUSTODIAN for the grandson under the state's Uniform Transfers to Minors Act. What does that accomplish?

1. A.It makes the grandson the immediate legal owner of the policy.The designation names who receives the proceeds at death; it transfers no ownership of the policy during the insured's life, and certainly not to a minor.
2. B.It creates a trust, complete with a written trust instrument and a trustee.A custodianship arises under a statute by virtue of the designation itself. There is no trust instrument to draft, which is exactly why it is cheaper than a trust.
3. C.It permits the insurer to withhold payment until the grandson reaches adulthood.The proceeds are paid promptly, to the custodian. Holding the money at the insurer is what a settlement option would do, and it is not what a custodianship achieves.
4. D.An adult custodian named in the designation receives and manages the proceeds for the minor under the statute, without a guardianship or the cost of a trust, turning the property over at the age the statute sets.Correct. The custodianship is the low-cost middle path between naming a minor outright, which forces a guardianship, and drafting a trust.

Why: A custodial designation under the Uniform Transfers to Minors Act lets an adult custodian named in the beneficiary designation receive and manage the proceeds for the minor under a statutory framework, without a court-appointed guardian and without the cost of drafting and administering a trust. The custodian holds and applies the property for the minor's benefit and must turn it over to the beneficiary at the age the statute sets. It is the low-cost middle ground between naming a minor outright and creating a trust.