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Can a custodial account be used as collateral for the custodian?

Can a custodial account (certificate of deposit) be used as collateral on a loan for the Custodian, i.e., Jane Doe, custodian for Johnny Doe? It is not titled UTMA, but the minor's SSN is used on the CD.

Answer by Karen Garrett
No. The account is for the benefit of the beneficiary, not the custodian.


Answer by Ken Golliher
I agree with the preceding answer all the information available to the bank indicates the deposit does not belong to the loan applicant. Generally, all a custodian has is "naked possession" of the property, he or she has no elements of ownership at all the ability to pledge the funds for the custodian's debts is out of the question.

However, the reason this dilemma is on your plate is that one of your fellow employees allowed this customer to open the account without adequate documentation. Saying "No" should only be the preface to revising the relationship.

There are 6 or 7 inviolate rules in account opening. One of them is: "Never let someone use a fiduciary title in an account unless they have a piece of paper supporting it." If it is "custodian under XUTMA", you have X's state statute incorporated by reference, if it is "attorneyinfact," you have the power of attorney, if it is "guardian," you are looking for a court order. If they want to call themselves "Trustee," that's fine. You either get a copy of a written trust agreement or know there is a state statute authorizing such an account title.

Here, if the party wants to be a "custodian," your institution should receive a copy of a custodial agreement. As the purported owner is a minor, he or she probably does not have the ability to name a custodian.

First published on 3/4/02

First published on 03/04/2002

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