Can You Make Withdrawals From Your Child's UTMA Money?

Touching that college fund could cause problems

A man looks over paperwork.
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Given the importance of teaching your kids about money, you may have spent a lot of time discussing the topic with your family over the years, especially as it pertains to a common form of non-trust gifting mechanisms, the Uniform Transfers to Minors Act (UTMA). Whether you're making a cash gift via the UTMA or transferring shares of stock under the UTMA laws, this is a popular tool for families.

The way the UTMA is written, such a gift to a minor is irrevocable and cannot be undone. There is no un-ringing the bell after the check has been deposited, the shares have been transferred, or the mutual fund transactions have been recorded.

While the assets in the UTMA belong to the minor, there may be certain circumstances where a parent custodian may be able to withdraw from the account. But the rules are open to interpretation, and there have been many cases in the past of children suing their parents over mismanagement of UTMA assets.

Key Takeaways

  • Under the Uniform Transfers to Minors Act (UMTA), money deposited into a UTMA account typically can't be withdrawn except by the child at the appropriate age.
  • As a UTMA custodian you have a fiduciary duty towards the beneficiary of the account, which means you need to hold their best interest above all else
  • A UTMA custodian may be able to use some custodial assets for the "use and benefit of the minor."
  • Withdrawals from a UTMA account cannot substitute any obligations a custodian who is a parent or guardian has to support the minor.

Can You Spend Your Child's UTMA Money?

The Uniform Transfers to Minors Act (UTMA) does allow the custodian to utilize the custodial assets "for the use and benefit of the minor" under certain circumstances. These may include expenses incurred for the benefit of the minor or even payments made to the minor (after they've attained 14 years of age).

The one big caveat is that any withdrawal, payment or spending from this account cannot substitute any obligation you have as a parent or guardian to support the minor.

The Reason Your Child's UTMA Assets Are Protected

Legally speaking, two things occurred the moment assets were gifted under the UTMA law, whether or not the donor was fully aware of UTMA restrictions on withdrawals.

It became an immediately vested, irrevocable gift

Typically, neither you nor any other donor can withdraw money deposited into a UTMA back for any reason (this includes cases in which the child dies; the UTMA funds are part of their probate estate and need to be settled accordingly). The funds must be handed over to the child at the age of maturity, which is determined at the time of the gifting, and it can be as high as age 25. If no age is predetermined, then it defaults to either 18 or 21, depending on state law.

There's no scenario under which you can take that money back. It doesn't matter if you think the funds are too much for them to handle. They can tell you they plan on dropping out of college and gambling away the rest of their savings in Las Vegas—that's their choice, and it's their money. Anything you do to try to stop them from spending the money how they want is going to put you in a legally precarious position.

As the account custodian, you owe a fiduciary duty to your child

In the United States, a child's money does not belong to the child's parents or guardians. Once the paperwork is in order, as a custodian of a UTMA you become a fiduciary or you owe a fiduciary duty to the beneficiary of that account.

"Fiduciary duty" means you can only use the money in their best interest. You must invest it in a manner consistent with the "prudent person rule." You also can't use the funds for necessary expenses such as food or shelter, because you are legally obligated to provide those as a parent.

"Once you've put someone in that fiduciary capacity, no they can't be paying if the child support obligations is theirs individually," Jason Haselkorn, an investment fraud attorney and Partner at Haselkorn & Thibaut told The Balance in an interview. "They can't be taking money that belongs to the beneficiary to pay a child support obligation because as a trustee and as a fiduciary you are basically pilfering the beneficiary's money even if the money is going towards the benefit of that beneficiary," he added.

This fiduciary obligation is also what makes it so hard to understand what is permissible and what is not because the law varies by state. "Now you're under that state's common law and each state has its own common law case law and principles that'll develop," said Haselkon.

As part of the fiduciary obligation, you are also required to keep detailed accounting records, down to the penny, of every cash flow into or out of the account. If the child requests accounting records, even decades after it was first established (as is often the case when babies or young children are gifted stock), you'll be compelled by the courts to produce it (if you don't do so voluntarily).

You would think these rules would be fairly straightforward. Yet, parents continue to wrongly state, often with conviction, that they are perfectly within their rights to spend a child's money, undo a previous transfer, or somehow stop an irresponsible child from accessing UTMA principal. By cashing checks on behalf of a child, the parent agrees, knowingly or unknowingly, to take on the obligations and liabilities of custodianship. The donor or the child could easily come back and sue the parent if the parent mismanages those funds. Even without malicious intent, it's illegal to do anything with the money that the child doesn't ask for. A child could technically sue for something as simple as moving the UTMA money into a regular 529 college savings plan.

Legal proceedings could result in the restitution of the funds you took, payment of foregone investment income that should have been generated, attorney fees, and a host of other expenses that can (and probably will) be more costly than the money you used. 

Some Case Law Rulings in Which a Parent Is Sued by an Adult Child 

Even if you think you're spending the UTMA money for the benefit of your child, it may not be a permissible transaction and very much open to legal challenge. While there may be many examples of custodians acting in bad faith, something as simple as improperly kept accounts could land you in hot water.

Look at Whitman v. Whitman in 2012 from the appeals court in Ohio. A licensed attorney set up several accounts, including a college fund, for his son. When his son went to use it and couldn't figure out where all the cash was, he sued his dad. His dad not only lost but was carted off to jail for contempt.

In the case of Carlson v. Wells in 2011 from the Supreme Court of Virginia, the Carlson children sued their father and uncle after the latter refused to provide detailed records about the UTMA funds that had been set up for them. The court ended up discovering that the father had spent some of the money, speculated on an airline stock with much of the rest, and even transferred a chunk to his personal Vanguard Health Care account. In addition to the restitution he owed, he also had to pay his kids' legal bills.

In North Carolina, a man gifted cash from the proceeds of a sale of the family business to his granddaughter, naming his son as custodian. The son used some of the money to pay for the daughter's medical and dental bills, among other things. When his daughter sued him for raiding her accounts, he lost because it is considered the duty of the parent to pay for those things as a matter of basic child support. Legally, it isn't the responsibility of the minor to cover medical and dental bills. He was ordered to pay restitution, the amount of investment income the girl would have enjoyed under a reasonable compounding scenario, and all of her legal fees. Additionally, he was removed as custodian because of his mishandling.

The Bottom Line

Ideally, if possible try and not mix your child's UTMA savings with your own. If you must spend assets from a UTMA, consult a professional to cover your bases and check what is permissible. Keeping perfect records would be a good way to track those transactions. On their appropriate birthday, promptly turn the UTMA over without being asked. 

Frequently Asked Questions (FAQs)

What is a custodial account?

A custodial account is a financial account that an adult controls for a minor (a person younger than 18 or 21, depending on state law). It can also refer to any account maintained by one party on behalf of another. In either case, the custodian is required to act in the best interest of the beneficiary of the account.

What is a UTMA account?

The Uniform Transfers to Minors Act (UTMA) is a legislation that allows gifts to minors. These gifts can be held until they reach the age of majority without having to set up a trust. The money put into this type of account is an irrevocable gift to the minor, which means that it can't be taken back.

Correction Feb. 9, 2022 This article replaces an earlier version containing several incorrect statements about ability of custodians to use UTMA assets.

Article Sources

  1. Uniform Law Commission. "Transfers to Minors Act - Final Act," (Download) Page 25-26.

  2. Uniform Law Commission. "Transfers to Minors Act - Final Act," (Download) Page 25-26.

  3. Social Security Administration. "SI SEA01120.205 The Legal Age of Majority for Uniform Transfer to Minors Act (UTMA)."

  4. Court of Appeals of Ohio, Third Appellate District, Hancock County. "Whitman v. Whitman, 2012-Ohio-405." Pages 1-4.

  5. Supreme Court of Virginia. "Carlson v. Wells, 2011," Pages 1-5, 23-24.

  6. North Carolina Court of Appeals. "Belk v. Belk, No. COA11-604." Pages 1-5, 50-51.