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Question

Difficulty: EasyCustomer Account Types and Ownership Structures

An investor opens a custodial account for her nephew under the Uniform Transfers to Minors Act (UTMA). Which of the following statements correctly describes the legal ownership of the assets held in this account?

  1. The assets are an irrevocable gift owned entirely by the minor from the moment they are deposited.Answer
  2. B
    The legal ownership of the assets remains with the donor until the minor reaches the age of majority.
  3. C
    The assets revert automatically to the custodian's estate if the custodian dies prior to the minor reaching adulthood.
  4. D
    The custodian may revoke the gift and reclaim the account funds at any point before the minor reaches majority.

Answer

The assets are an irrevocable gift owned entirely by the minor from the moment they are deposited.
In a Uniform Transfers to Minors Act (UTMA) custodial account, all gifts deposited into the account are irrevocable and indefeasible. Beneficial ownership of the assets belongs exclusively to the minor beneficiary from the moment of deposit, even though an adult custodian manages the trading and administration until the minor reaches the age of majority.

Step-by-Step Solution

1
Identify the account ownership structure described in the scenario.
The account is an UTMA (Uniform Transfers to Minors Act) custodial account created for a minor beneficiary.
UTMA accounts are established with one custodian managing assets for the benefit of one minor child.
2
Apply FINRA and state regulatory rules regarding custodial gifts.
All contributions into an UTMA/UGMA account are considered irrevocable gifts.
Once cash or securities are placed in the account, beneficial ownership transfers immediately and permanently to the minor.

Key Concept

UGMA/UTMA Custodial Account Ownership and Irrevocable Gift Rules
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Topics

Customer Account Types and Ownership Structures