By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning & Trust Law Attorney
Recently a client who is the custodian on an account for her granddaughter wanted to transfer a custodial account to a trust. The trust will be for the benefit of the same granddaughter. The Custodian would not be the trustee…her adult daughter would be. The money would be held in trust until the granddaughter reaches 30. Is this request lawful under the governing law? My answer is probably not, but might still be something to consider.
Initially the law authorizes an account custodian to name a successor custodian to ensure that someone is in charge of the account in the event of incapacity or death. So logically, I don’t see why an institution would have a problem with the current custodian naming someone else to take over the duties while he or she is competent/alive to make that decision. But, what right does a custodian have to give away money to a trust when the UTMA says the account is payable to the individual at age 21? While unlikely, the now minor (later adult) could sue the custodian and trustee for conversion.
Seems to me, the custodian has no authority to extend the release of funds beyond age 21, without first going to court. The reason is because the custodian merely holds the funds in “quasi-trust” for the beneficiary. The beneficiary has the right to the proceeds of the account at his/her legal age. But, another option might be to have the custodian place the fund(s) into an investment that would not mature until the beneficiary is 30 so as to discourage the beneficiary from cashing it in early. Some might claim to do so is bad faith. I say not if the investment can be cashed out for the value invested. The custodian could also try talking with the beneficiary, say at age 20, in terms of protecting the investment and holding up distributions of the savings for a later time. Over the years we’ve had a lot of good luck with these young adults. Often our clients just continue the custodial account with the beneficiary’s consent for an indefinite period of time until the beneficiary wants it. Lots of kids seem to understand that not taking the money (or all of it depending on the size of the account), is to their benefit.
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