AboutJim Meadows Expertise I can respond to most questions concerning consumer and business relationships with US financial institutions. My expertise touches on deposit and loan issues and particularly on strategies to navigate through bank policies personell and practices. I have a degree in Economics, attended law school, Graduate Shool of Banking, and Commercial Lending and Compliance Schools.
Experience I have twenty years experience as a bank CEO. Most of those years were spent operating a bank focused primarly on serving consumer/retail needs. I helped pioneer deposit and loan products for low/moderate income individuals. I currently serve on multiple bank boards and am Chairman of a Commercial Bank in Atlanta.
Question After turning 18 in 2008, I was unaware of my bank accounts, but learned about them when asking my parents about taxes.
My father is the custodian of a Vanguard mutual fund that has been under my name and social since I was young. Now that I'm almost 19, I still have no access to and minimal knowledge of the account that is on my taxes (he did them without my knowledge).
In lue of threats that I would be pulled out of college if I tried to gain control of my accounts (including things such as PIN numbers for checking accounts) I have had trouble gaining any ground on personal finances and money management even though I am a legal adult.
I would like to know rules and regulations for custodianship of an account.
And why the bank refuses to give me any access to or knowledge about the account when I have already proved that the account is under my name, social, birth date, and other personal information.
Answer Cathy,
Parents and other custodians may be distressed to learn this, but the Uniform Transfers to Minors Act is very clear in giving the minor a right to these assets. A transfer under the Uniform Act "is irrevocable, and the custodial property is indefeasibly vested in the minor." In other words, the property belongs to the minor and you can't take it back, even if you're the minor's parent, or the custodian, or the person who made the transfer, or all three of these at once. If you're the custodian, you have a legal duty to preserve the assets for the minor (except to the extent properly expended for the benefit of the minor) and to turn the assets over to the minor at the age designated under the law of the relevant state.
Even before the minor reaches the age where the account is turned over, a minor who is 14 or older has a right to see records of all transactions with respect to the custodial property. At age 14 the child also has the right to petition the court for a payment from the account, and if the court considers the payment appropriate, it can order a payment. I expect almost any court would consider it appropriate to distribute money to cover the minor's tax liability arising from income generated in the account and would order such a distribution if called upon to do so. When the minor is under the age of 14, other appropriate individuals such as an adult member of the minor's family can exercise these rights on the minor's behalf.
If you're thinking of taking money from the account for your own purposes, consider these possible consequences:
■Taking the money could be a criminal act. Realistically, prosecution is highly unlikely except in cases of extreme abuse, but this point is worth pondering.
■Taking the money leaves you personally liable to be sued by the minor, or by someone acting on behalf of the minor.
■Taking the money exposes you to tax liability. It's possible the IRS would take the position that the entire amount taken must be reported as ordinary income on the theory that this is an embezzlement, and embezzled funds are income to the embezzler.
■Taking the money could have another consequence worse than the others mentioned above. Your actions could result in estrangement from a loved one. Sometimes it's easier to cause this kind of damage than it is to repair it.
Without question there are circumstances where a custodian has reasonable moral grounds for keeping the money from the child. In many of these cases I sympathize with the custodian, especially when the goal is to preserve the money for the later benefit of a young adult who plainly lacks the maturity to handle it. The law is clear, however. It doesn't give the custodian discretion to withhold these funds from the minor.
Minor considerations
If you're on the other side of this question — you're the minor and you want to get your hands on the money, or at least prevent the custodian from taking it — you should know your legal rights. You should also consider the moral dimension of the issue.
I've already mentioned some of your legal rights. In addition, you have a right to petition in court for an "accounting" in which the custodian has to show how the assets were preserved or used for your benefit. If the custodian has misappropriated some or all of the custodial property, the custodian may be personally liable — in other words, may have to make up the difference. If the situation calls for removal of the custodian, you can petition for that, too. If you're under 14, you'll have to get an appropriate adult to file this petition on your behalf.
Before you run off to the courthouse or start threatening to sue your parents, take some time to consider the following:
■The custodian may be acting in your best interest. Hard as it may be for you to admit, you may not be ready to handle this money. Five years from now you may thank your lucky stars that your custodian refused to hand the money over. In a case like this, the best solution might be to work something out where you leave control in the hands of the custodian, but you have access to information about your assets on a regular basis and an understanding of when control will actually pass to your hands.
■Even if your custodian isn't acting in your best interest — for example, the money is being misappropriated to other uses — think long and hard before suing a close family member, or even threatening to sue. Try to imagine how you would feel if you received such a threat. Try also to imagine how this will affect your relationship to this relative. Five years from now, what will you regret more: the loss of this money, or damage to the feelings between you and your loved ones? Be especially reluctant to sue your own parents. To use an expression from when I was your age, that's a heavy trip.
