Financial institutions face a series of challenges and restrictions when establishing deposit accounts involving minors. Consideration of the benefits and limitations associated with various account types may help ensure customer satisfaction and institution compliance. The following minor account types are the most offered. Learn about their nuances below.
Uniform Transfer to Minors Act Accounts
These accounts are opened in accordance with state-specific statutes, but the overarching principles are generally consistent. A deposit into this account type creates an irrevocable gift to the minor. This means that ownership of funds is fully transferred to a minor customer. However, transaction authority will reside with an adult custodian. The custodian manages the account for the benefit of the minor.
This dynamic often leads to operational confusion. However, the institution’s contract is with the adult custodian. Thus, the adult custodian is the only one with transaction authority. The minor is prohibited from accessing the funds or the account in any capacity. It is the responsibility of the adult custodian (and not the financial institution) to distribute the funds in accordance with state law when the minor reaches the age of majority.
Minor Accounts
Most states have statutes specifically permitting the establishment of a deposit account in the name of a minor. There is typically no requirement that an adult be associated with the account. The account operates in the same way as a single-party account held by an adult when it is opened in the name of a minor. This means that the minor is the owner of the funds and maintains full transaction authority.
It is important to recognize that this account arrangement does not give transaction authority to an adult (even if they are a parent). In addition, state law may limit an institution’s ability to recoup a loss in connection with an overdrawn or charged-off account owned by a minor. These risks and limitations should be taken into consideration when determining whether to offer minor accounts.
Joint Accounts With a Minor & an Adult
Many institutions believe that the most prudent approach to minor accounts is a joint account with an adult owner and a minor owner. The adult and minor are equal owners on the account. Therefore, they have equal transaction authority, and the minor has full access to the funds. The funds are also not protected for the benefit of the minor. Funds on deposit in joint accounts may be subject to garnishment orders or other debt instruments, even if the adult incurred the debt.
How Forvis Mazars Can Help
Institutions should consider various account features and limitations when establishing a minor accounts policy. In addition, seeking support from local counsel or a third party, such as ProBank Education Services at Forvis Mazars can help with understanding these accounts.
Our services include compliance seminars, webinars, and in-house training courses specifically designed for accountants, branch managers, Bank Secrecy Act (BSA) officers, compliance officers, customer service, executive management, loan processors, mortgage brokers, new accounts personnel, operations officers, risk management, and directors. For more information on our offerings, please reach out to a professional at Forvis Mazars.