Expanded Response: Using UTMA Account as Collateral

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Question:

Can you expand on this answer any? Is it because of the tax consequences or the fact that the account is owned by the minor, and that the minor cannot sign to pledge the collateral, or something else?Using an UTMA Account as CollateralAnswer by Randy Carey, Question: Can a child's UTMA-WI savings be used to secure the parents' loan? Answer: It would be based totally on state law, however in most states it would not be allowed.

Answer:

Generally (for specific answers, you'd have to check state law), the UTMA requires that the funds or other property in the custodial estate be used only for the minor's benefit or be given to the minor. It would generally be a violation of the UTMA statute for funds to be used for the parents' (custodian's) benefit.Use of the account as collateral for the parents' loan could also be considered a breach of the custodian's fiduciary responsibility, of which the lender would have notice under the UCC, section 3-307.

First published on BankersOnline.com 8/09/10