• General rule: can own property, but lacks legal capacity to transact re it. Risk: disaffirm at majority.
o Ks don’t bind minors.
• Don’t put property in hands of minor.
• Guardians costly
• Alternative: trusts.
o MA: the traditional answer. A good one. But expensive, so inappropriate for small gifts. Response: UGMA, superseded by UTMA.
• Also: UTMA custodianship – “to A as custodian for B under UTMA.” Vests property in minor (title), and custodian has fiduciary powers/duties. Standard of care – prudent person dealing with property of another. Power as if youre an adult handling own property, but only handle in custodial capacity. Spend or pay for minor’s benefit as much as you consider advisable for use and benefit of minor without court order and without regard for duty/ability of another to support minor or any or other income or porperty minor has/can have.
o Duty to turn property over when minor reaches 21 for 141.005 of 141.006 (transfer by gift or by will/trust)/reaches majority for 141.007 or 141.008 (absent will or will/trust that contains authorization to do so or another transfer to custodian by an obligor) , or dies – earliest to occur.
o Parent puts property in custody includible in parent’s estate for tax purposes.
o Can transfer by irrevocable gift to custodian; by transfer authorized by will/trust (to custodian named in will if named); absent will/trust; or in satisfaction of debt to minor
• Minor/minor’s family can petition court for an accounting
• MA on the UTMA
• Every state has one. In TX it’s in Property Code.
• 141.010(a)(2): custodial property is created and a transfer is made when money is paid or delivered to a financial institution for credit to account in the name of the transferor or someone other than the transferor followed by the words “as custodian for _____ under the UTMA.”
o E.g. Joe Blow as custodian for Jeannie Blow under the TUTMA.
o MA: do this! Start saving for kid’s education.
• 141.010 has (a)(1)-(7). There are other methods of creation. E.g. for property interest not described in 1-6. Means you can create custodianship for anything.
• Effect: 141.012(b): a transfer under UTMA is irrevocable. Indefeasibly vested in the beneficiary. Sharp language! Belongs to Jr.
o Importance: creditors can’t touch it. (Caveat: fraud; insolvency when conveyance made. But otherwise – i.e. if you’re solvent and not running a fraud – creditors can’t touch it.)
• He says you can name yourself custodian. Chances of you dying are low when you’ve just now reproduced.
• Child pays the income tax on what income the property generates. Income tax minimization.
• Custodian’s duties:
o Take care of property
• Custodian’s powers:
o What an unmarried adult owner has over his own property
• You can use the UTMA to support the child even if the child has other money available for support. All-encompassing powers about when, how, and whether to use money. Only thing you can’t do is steal money – i.e., use it for yourself. Decisions must be for child’s money. Doesn’t have to be necessaries. Can’t be luxuries.
o But you’re a fiduciary. If you’re benefitting yourself mostly and marginally benefitting child, you’re breaching duties. That said, who will sue you? Your child? Rare.
• Termination of UTMA – when you can get the money…
• MA: it’s overly complicated. There’s a 21 year-old path and an 18 year-old path.
• 141.005 or 141.006 transfers come out at 21 – that’s either going to the bank and doing the custodianship (outright gift) or the will or trust that says “if minor gets it, executor can put the property in a UTMA account for minor’s benefit.”
• 141.007 and 141.008 transfers come out at 18 – these transfers are: when will provides property to minor beneficiary but does not authorize executor to put it in a UTMA arrangement; or when someone owes the minor property/money and decides, as it can, to put it in a UTMA account.
o MA: normal gift wait to 21; when it’s kind of already your property, age 18.
• The Texas escape hatch
o 141.015(b)(1) you can transfer out of UTMA and into a trust for benefit of kid, which 141.002(12)(a) qualifies. That’s a way to avoid minor getting the property at 18.
He also says if you don’t want to turn the money over to the kid, outsmart him. Buy him a trip. Pay for his tuition. Spend it for him. Don’t let the UTMA funds go to him unless you want them to. OR a college savings 529 plan. Tax exempt income. Creditor protection in most states. But funds have to be used for education. Don’t overfund it.