The Uniform Transfers to Minors Act, also known as UTMA, is a type of custodial account set up for minors by adults. Many people set these accounts up for their children and grandchildren. For example, you might add $20,000 to a UTMA account for your child's schooling in the future.
When you place money into a UTMA account, that money is no longer yours to withdraw. It is protected and belongs to the minor named on the account.
What happens if you take money out of a UTMA account?
If you are thinking about taking money out of a UTMA account, stop before you do. It's against the law unless you're the person named on the account and have reached the age of maturity.
Once money is invested into a UTMA, it is immediately vested and irrevocable. Even in the case of a child's death, the money cannot simply be withdrawn. Instead, it has to be settled with the child's estate.
Additionally, as the custodian of the account, you owe your child or the minor on the account a fiduciary duty. That means that you must keep detailed records of transactions into and out of the account.
Some parents believe that it's acceptable for them to borrow from UTMA accounts or to prevent their children from accessing the funds. The reality is that the child is the legal owner of those funds and can sue if they are misused or stolen. It's in your best interests to avoid using UTMA funds and to protect them for your child.