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Answers questions about the minor's right to custodial account assets.
Every so often I get a question like this one:
Years ago my parent (or other relative) set up a custodial account in my name. Now I've reached the age where I'm supposed to receive the money (or I'm about to reach that age) and they refuse to turn it over to me. Don't I have a right to this money?
Reasons given by the parent or custodian for refusing to turn over the money vary, including:
In some cases no reason at all is given. In any event, the minor for whom the account was established wants the money and feels frustrated by the custodian's refusal to turn it over. That frustration is particularly acute when any of the following are true:
Parents and other custodians may be distressed to learn this, but the Uniform Transfers to Minors Act is very clear in giving the minor a right to these assets. A transfer under the Uniform Act "is irrevocable, and the custodial property is indefeasibly vested in the minor." In other words, the property belongs to the minor and you can't take it back, even if you're the minor's parent, or the custodian, or the person who made the transfer, or all three of these at once. If you're the custodian, you have a legal duty to preserve the assets for the minor (except to the extent properly expended for the benefit of the minor) and to turn the assets over to the minor at the age designated under the law of the relevant state.
Even before the minor reaches the age where the account is turned over, a minor who is 14 or older has a right to see records of all transactions with respect to the custodial property. At age 14 the child also has the right to petition the court for a payment from the account, and if the court considers the payment appropriate, it can order a payment. I expect almost any court would consider it appropriate to distribute money to cover the minor's tax liability arising from income generated in the account and would order such a distribution if called upon to do so. When the minor is under the age of 14, other appropriate individuals such as an adult member of the minor's family can exercise these rights on the minor's behalf.
If you're thinking of taking money from the account for your own purposes, consider these possible consequences:
Without question there are circumstances where a custodian has reasonable moral grounds for keeping the money from the child. In many of these cases I sympathize with the custodian, especially when the goal is to preserve the money for the later benefit of a young adult who plainly lacks the maturity to handle it. The law is clear, however. It doesn't give the custodian discretion to withhold these funds from the minor.
If you're on the other side of this question — you're the minor and you want to get your hands on the money, or at least prevent the custodian from taking it — you should know your legal rights. You should also consider the moral dimension of the issue.
I've already mentioned some of your legal rights. In addition, you have a right to petition in court for an "accounting" in which the custodian has to show how the assets were preserved or used for your benefit. If the custodian has misappropriated some or all of the custodial property, the custodian may be personally liable — in other words, may have to make up the difference. If the situation calls for removal of the custodian, you can petition for that, too. If you're under 14, you'll have to get an appropriate adult to file this petition on your behalf.
Before you run off to the courthouse or start threatening to sue your parents, take some time to consider the following:
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