On a deposit account titled Dad Smith for Son Smith where Son Smith is listed as the owner of the account but Dad Smith is the only person with transaction authority because Son Smith is either a minor or is of insufficient mental capacity to manage his money can the bank give Son Smith the account balance since he is the owner but does not have transactional authority (cannot sign on the account)?

Ahh, sounds like a good old fashioned "minor by" account.

The idea that someone can open an account and retain control of the funds, but use another person's name and TIN, is a complete fiction unless it is specifically authorized under state law. An example of a specific authorization would be the Uniform Transfers to Minors Act if it has been adopted in your state.

If your bank is simply opening accounts "Son by Parent" and using Son's SSN then I would guess it's a practice attributable to someone's imagination. As there is no legal structure to support it, you could probably disclose or refuse to disclose anything you wish.

If the account is in fact a properly titled UTMA account, I don't believe there's any legal reason why you couldn't tell the child the account balance. They are the owner of the funds, but unauthorized to transact on the account.

I wouldn't want to try to explain such an account relationship to a judge. It's either a joint account or it's not and should be clearly established as one or the other.

Did you look at the terms in your Account Agreement that govern this custodial account? If it is not an UTMA account but rather some UTMA like account developed by your institution (perhaps a "minor by" account as Ken suggests), then whoever drafted the Account Agreement may have included in the agreement what rights, if any, the minor has with respect to the account before the minor reaches the age of majority. If your Account Agreement doesn't answer your question, you may want to consult with your bank counsel on revising the Account Agreement to specifically address what rights the minor has with respect to the account.

If it is not an UTMA account but rather some UTMA like account developed by your institution......

Under what State law or Statute would this type of account be developed?

An account that has a set-up similar to an UTMA account could also be a Rep. Payee account for Social Security Benefits or a Guardianship account. Providing the information on the balance of the account to the beneficiary may be the only way to catch abuse by the fiduciary. As a general policy, we do not allow it, but on a case-by-case basis exceptions may be made for that same reason.

"Rep. Payee account for Social Security Benefits or a Guardianship account"

I don't really equate those to a "UTMA like account developed by your institution" that would have no basis in law.

General banking law statutes which permit banks to offer deposit accounts. A number of banks offer what they call "minor by" accounts, the terms of which vary from bank-to-bank.

These type of accounts are not common in the sense of UTMA accounts but they usually operate in a similar fashion with some differences (they may permit more than one custodian, they may permit the minor to directly take possession of the funds upon reaching the age of majoirty without the permission or involvement of the adult "custodian"). The terms of these type of accounts are determined by the bank rather than by a detailed statutory scheme (as is involved with UTMA accounts).

And my point is that I am unaware of any State or Federal law that lays the ground work for a bank to establish such an account by contract. What general banking law are you referring to that allows a bank to establish a custodial type account without it being either established under State banking law, under the trust laws, under Federal statutes or by court order? The banks that I have seen that offer "minor by" accounts do not even have such contract, whether legal or not.

A Rep. Payee and Guardian account may not be "UTMA like" in the sense that their operation is not outlined in a statute, but the way they are set up at the financial is the same.

While practically anyone can open a custodial account (at least in WI) a Rep. Payee or a guardian cannot self-designate. For the custodians, there is the statute to follow and operation of the other types of accounts is determined by the SSA and a court, respectively.

In my opinion, the initial question from J. Mire, without additional clarification, could very well apply to those accounts as well. Especially since "mental capacity" is mentioned as a factor - a UTMA account would only be available if the person is also a minor and a Rep. Payee or guardian account would be exactly what would be used in that scenario.

The lack of legal support as referenced by Randy was the reason for my reference above. Any time a bank establishes an account for which there is no support under a state or local statute, it is taking a risk. I have been attending deposit compliance training classes for over 20 years and there is a section in almost every class warning against establishing "a minor by" accounts. How would a bank make a case that it was prudent in establishing and maintaining such as account in light of industry-wide training against such a practice? I just don't think a bank would stand a chance in winning a case brought by an "injured" party.

But banking is a risky business, we must all decide our risk tolerance and more forward accordingly.

Brenda, are you talking about a "minor by" account as a separate category, or are you saying that Rep. Payee accounts and guardian accounts are essentially the same thing?

The "minor by" accounts that are problems are those that are set up by someone on behalf of a minor without reference to the UTMA or UGMA of a state and without specific guidance or requirements under a court order, SSA guidance or state law. In other words, they are "DIY" accounts and there's often no legal framework on which they are created.

So, what happens to ownership if the minor dies? What happens to the account if the adult that opened the account dies? Who determines who owns the funds? Without a legal framework, the bank and any surviving parties to the account are left with chaos in the sense of a lack of order, and could even have to get a court involved.

Thanks, John. That's what I thought. But for a minute there, I wan't sure where this discussion was going, since the original question did not really specify that it was about accounts developed by the institution.

The general banking laws to which I referred are state based laws. We have a different experience on seeing a contractual terms governing "minor by" accounts as I have seen them for different banks.