IBA Compliance Connection

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We mistakenly opened a Uniform Transfers to Minors Act (UTMA) account for an employee and her minor child that should have been opened as a joint savings account. The employee is listed as the custodian on the account and all the deposits into the account have been made through payroll deductions with no indication that they are for UTMA purposes. Can we close the UTMA account and place the funds into a new joint savings account? The owners of the new account would be the employee and her minor child.

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admin

Yes, we believe you may close the UTMA account and transfer the funds to a new account since they would not be considered “custodial property” under the UTMA.

The UTMA provides that custodial property is created and transferred when money is paid to a financial institution for credit to “the transferor . . . followed in substance by the words: ‘as custodian for ………. (name of minor) under the Illinois Uniform Transfers to Minors Act’.” Transfers made according to this provision are irrevocable, as “the custodial property is indefeasibly vested in the minor.” As noted by an Illinois bankruptcy court, irrevocable gifts can be made “simply through compliance with the formalities of that Act.”

Here, the employee’s payroll deductions do not comply with the formalities of the UTMA, since they do not indicate that she is depositing the funds as custodian for her minor child under the UTMA. Consequently, we do not believe the funds would be considered custodial property, and we believe your employee may transfer the funds to a new account.

For resources related to our guidance, please see:

  • Illinois Uniform Transfers to Minors Act, 760 ILCS 20/10(a)(2) (“Custodial property is created and a transfer is made whenever . . . . (2) money is paid or delivered to a broker or financial institution for credit to an account in the name of the transferor, an adult other than the transferor, or a trust company followed in substance by the words: ‘as custodian for ………. (name of minor) under the Illinois Uniform Transfers to Minors Act’ . . .”)
  • Illinois Uniform Transfers to Minors Act, 760 ILCS 20/12(b) (“A transfer made pursuant to Section 10 is irrevocable, and the custodial property is indefeasibly vested in the minor, but the custodian has all the rights, powers, duties, and authority provided in this Act, and neither the minor nor the minor’s representative has any right, power, duty, or authority with respect to the custodial property except as provided in this Act.”)
  • Dally v. Bank One, N.A. (In re Dally), 202 B.R. 724, 728 (Bankr. N.D. Ill. 1996) (“Under Illinois law, there are three elements which make a valid gift: donative intent, transfer of dominion and control, and delivery. . . . The UTMA allows such a gift to be made simply through compliance with the formalities of that Act. Id.”)