We read an Arizona Court of Appeals decision last month that made us think we need to explain about an UTMA account. Again.
First, the court decision. In In re Custodial Account for the Benefit of E.L., on February 13, 2025, the Arizona Court of Appeals addressed a probate court decision about an UTMA account. The decision was a “memorandum” decision, and so not very useful as precedent in future cases.
It also didn’t decide anything very dramatic. The appellate court upheld the probate court’s decision to require an accounting from the custodian. It also required some funds to be returned to the account.
What was striking (to us, at least) was the parents’ apparently casual attitude that they could use the account as if it was their own. An UTMA account belongs to the minor. E.L.’s parents appeared to think of the money as belonging to the whole family. Each seems to have made withdrawals for their own benefit, and complained about the same behavior on the other’s part.
What is an UTMA account?
UTMA stands for the “Uniform Transfers to Minors Act.” Every state (plus Washington, D.C. and the U.S. Virgin Islands) has adopted a version of UTMA. There are slight differences among the states, but it is a notably uniform Uniform Act. The Act is so widespread that it is usually referred to by its initials. One speaks of “an UTMA account” rather than “a U.T.M.A. account.” Actually, you can do it either way. But if you talk about “a Uniform Transfers to Minors Act account” you will stand out.
Though the Act is nearly universal, each state’s law has its own wrinkles. An account is usually referred to with its state identifier. So the account in E.L.’s case was called “a custodial account established under Arizona’s UTMA law.” On the account statements, it might be listed as the name of the custodian “as custodian under Arizona UTMA” or some similar phrasing.
E.L.’s parents set up an UTMA account for her benefit when she was just six months old. E.L.’s mother was named as custodian. This was not necessarily a decision about who was best qualified to manage the account. An UTMA account can only have one custodian, and for whatever reason E.L.’s parents decided that would be her mother.
Even though one parent was custodian, both parents apparently had “access to” the account. This is not explained in the court decision. But we can surmise that the account was available online. Perhaps both parents knew how to log in and direct payments or make deposits. And apparently, they both did. E.L.’s parents seem to have both taken money out of the account for their own, or perhaps for family, purposes.
An UTMA account has specific rules
But that’s not how an UTMA account is supposed to work. The very nature of the account is to accommodate gifts to minors. The earlier (pre-1980s) version of the law was even called “the Uniform Gifts to Minors Act”. Forty years ago, UTMA replaced UGMA in Arizona and most other states. But still, one of the two main ways for money to get into an UTMA account is by a gift. And it is supposed to simplify the process of making a “completed” gift to a minor. That’s true even though minors are unable to have their own bank or brokerage accounts, or to manage money in their own names.
A key concept in the Uniform Transfers to Minors Act: the money should be held (and, if necessary, used) for the benefit of the minor. And when the minor reaches the age of majority, an UTMA account should be turned over to them.
What is “the age of majority”? It depends. This is one area with some significant state-to-state variation, but Arizona’s law says that there are two ages to consider. For gifts from others (parents, grandparents, generous donors), “majority” is age 21. For money that belonged to the minor before (for example: inheritances that were not made payable to a trust, personal injury settlements, or earnings), “majority” is age 18.
Can the custodian hold the money past age 18 (or 21, as may be appropriate)? No. One limitation of an UTMA account is that it ends at majority. If the (former) minor is unable to handle money because of some limitation, the custodian (or some other family member) can initiate a conservatorship proceeding. But the minor is presumed to be able to handle their own funds at the age of majority.
Does an UTMA account custodian have to account to … anyone?
Yes. There are actually quite a few rules about accounting requirements. In general, though, the UTMA custodian may have to account to:
- The minor, on their request after they reach age 14.
- The minor’s guardian (of the person), conservator (of the estate) or personal representative (upon the death of the minor).
- A family member of the minor.
- The person who transferred money to the UTMA account.
Those accounting requirements can be invoked by filing a request with the probate court. And the probate judge can reject an incomplete or inaccurate accounting. The judge can also order return of funds not actually used for the benefit of the minor.
So why create an UTMA account?
The UTMA law was intended to simplify the process of making gifts or transfers to a minor. And it works. But there is a lot of misunderstanding about the effect of putting money into an UTMA account.
We often talk to family members who have established an UTMA account with their own savings, thinking it would be a generous gesture to put their child’s name on the account. What they often seem to miss is that a gift is a gift. They don’t later get to decide “oh, I think I need that money back.”
Or, sometimes, they manage a gift from a grandparent or an in-law, and rationalize that using the money for their own (or the family’s) benefit would also benefit the minor. But that’s not how an UTMA account is supposed to work.
We often encourage UTMA custodians to imagine that a judge is the custodian. Could you convince the judge that you should be allowed to take the money out and use it the way you are planning to? No? Then don’t do it just because there isn’t (yet) a judge involved.