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Question

Difficulty: EasyCustomer Account Types and Ownership Structures

A registered representative is assisting a client with establishing a Uniform Transfers to Minors Act (UTMA) custodial account for the client's minor child. Which of the following statements regarding the legal features and operational rules of UGMA/UTMA accounts are correct?

  1. Gifts deposited into the account are irrevocable and become the indefeasible property of the minor child.Answer
  2. The account must be registered with exactly one custodian and one minor beneficiary.Answer
  3. C
    If the minor beneficiary dies before reaching the age of majority, the account assets automatically revert back to the donor.
  4. D
    The custodian may delegate trading authorization by executing a third-party power of attorney.

Answer

The correct statements are that gifts deposited into the account are irrevocable and belong to the minor, and that the account must be established with exactly one custodian and one minor beneficiary.
UGMA/UTMA accounts are fiduciary accounts where any gift made into the account is an irrevocable gift that belongs solely to the minor beneficiary. Additionally, securities regulations mandate that a custodial account must be set up for a single minor beneficiary under the management of a single custodian.

Step-by-Step Solution

1
Evaluate ownership and gift rules for UGMA/UTMA accounts.
Gifts are irrevocable conveyances of property directly to the minor.
Once assets are placed into a custodial account, the donor surrenders all rights to retrieve them.
2
Identify structural and registration requirements for custodial accounts.
Every UGMA/UTMA account permits only one custodian and one minor.
FINRA and state custodial regulations prohibit joint custodians or multiple minor beneficiaries on a single account.
3
Analyze disposition upon beneficiary death and fiduciary delegation rules.
Assets flow to the minor's estate upon death, and custodial authority cannot be delegated.
Because the minor is the beneficial owner, the assets form part of their estate. Fiduciary responsibility strictly stays with the designated custodian.

Key Concept

UGMA/UTMA Custodial Account Rules and Structure
Estimated Time:1m 0s
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Topics

Customer Account Types and Ownership Structures