Many individuals have created custodial accounts under the Uniform Transfer to Minor Act (UTMA) or Section 529 College Savings Plan accounts for minor children and/or grandchildren. In each case, an adult is named as the custodian of the account held for the benefit of the minor child. This article addresses the issue that arises when the custodian of the account becomes incapacitated or dies.
When a person establishes a custodial account under UTMA, he or she has the ability to name one or more individuals to serve as substitute custodians. In addition, the custodian may designate a trust company or an adult other than the person establishing the account to serve as a substitute custodian. If a custodian becomes incapacitated or dies without a successor custodian having been designated and the minor is at least 14 years of age, the minor may designate a successor custodian who is an adult member of his or her family, a conservator or a trust company if the minor does so within 60 days following the death or incapacity of the custodian. However, if the minor is not 14 years of age or is 14 years of age but does not make the designation within 60 days, the minor’s conservator becomes the successor custodian; or if the minor has no conservator, then the person establishing the account or an adult member of the minor’s family may petition the court to designate a successor custodian.
Since filing a petition with the court is cost prohibitive for smaller accounts, it is very important that an individual establishing a custodial account designate successor custodians; and if successor custodians were not designated for an account at the time it was established, then the acting custodian should designate a successor custodian in writing before a subscribing witness. In addition, an individual’s financial power of attorney should specifically grant the individual’s agent the authority to appoint successor custodians on any accounts established by the individual or on any accounts for which the individual is serving as a custodian.
A successor account owner may also be named for Section 529 College Savings Plan accounts. As the successor account owner, the named individual has the right to change the beneficiary and custodian of the account and withdraw the funds.
Finally, even though the establishment of these types of accounts is considered a taxable gift, if the individual establishing an UTMA account is the custodian at the time of the individual’s death, the account will be included in the individual’s taxable estate for federal estate tax purposes.
If you have questions concerning the custodian of any accounts established under the UTMA or your Section 529 College Savings Plan accounts, please don’t hesitate to contact us.
*The content of these articles shall not be interpreted or construed as legal advice. These articles are not routinely updated, so if you have any questions or concerns relevant to any topic referenced herein, please contact an attorney.