I. BANK ACCOUNT WITH MINORS: LEGAL VALIDITY
A. Age of Majority
Neb.Rev.Stat. § 43-2101 addresses the age of majority as follows: “All persons under nineteen years of age are declared to be minors, but in case any person marries under the age of nineteen years, his or her minority ends. Upon becoming the age of majority, a person is considered an adult and acquires all rights and responsibilities granted or imposed by statute or common law, except that a person 18 years of age or older and who is not a ward of the state may enter into a binding contract or lease of whatever kind or nature and shall be legally responsible therefor.”
B. Legal Authorization to Open Account
Nebraska law recognizes and authorizes a bank to open a demand or time account with a minor. Neb.Rev.Stat. § 8-135 governs this special legal relationship as follows:
(1) All persons, regardless of age, may become depositors in any bank and shall be subject to the same duties and liabilities respecting their deposits. Whenever a deposit is accepted by any bank in the name of any person, regardless of age, the deposit may be withdrawn by the depositor by any of the following methods: (a) Check or other instrument in writing. The check or other instrument in writing constitutes a receipt or acquittance if the check or other instrument in writing is signed by the depositor and constitutes a valid release and discharge to the bank for all payments so made; or (b) Electronic means through: (i) Preauthorized direct withdrawal; (ii) An automatic teller machine; (iii) A debit card; (iv) A transfer by telephone; (v) A network, including the Internet; or (vi) Any electronic terminal, computer, magnetic tape, or other electronic means.
(2) This section shall not be construed to affect the rights, liabilities, or responsibilities of participants in an electronic fund transfer under the federal Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., as it existed on the operative date of this section, and shall not affect the legal relationships between a minor and any person other than the bank.
Similar language relating to share accounts held with a state or federally chartered savings institution is found in Nebraska law (See, Neb.Rev.Stat. § 8-318)
C. Documentation
For this individual account, the bank would use the social security number of the minor (for TIN purposes) and either the minor or the parent may certify the TIN certification. The minor alone is the authorized signer and owner of the funds when deposited. If the parent or custodian is added as a co-owner, then the account may be deemed a jointly owned account.
II. “MINOR BY” CUSTODIAN ACCOUNTS
A. Overview
Generally, these accounts are stylized as “John Smith, Sr. for John Smith, Jr., a minor” or “John Smith, custodian for Johnnie Smith.” This would not be a joint account but a custodial account. The funds deposited may be characterized as revocable and could revert back to the custodian at any time. So long as control is not transferred exclusively to the minor, no gift has been made. Although this account is quite common, Nebraska law does not address “minor by” accounts.
B. Ownership and Documentation Issues
The authorized signer is the custodian. Should the custodian later add the minor’s signature, then the account ceases to be a custodian account and is characterized as a joint account. Ownership of the funds is a matter of state law and ownership dictates which TIN should be used for IRS reporting purposes. Unless it is shown that the minor actually owns the funds deposited, the custodian is deemed owner of the funds and the custodian’s TIN should be used. For TIN Certification purposes, if the account is styled in the name of the minor and adult signer, both signatures must be obtained; if characterized in the name of the minor or adult signer, either minor or custodian may certify.
III. UNIFORM TRANSFERS TO MINORS ACT (UTMA)
Nebraska adopted the UTMA (Neb.Rev.Stat. §§ 43-2701 through 43-2724) to allow for an irrevocable transfer to a minor in which the custodian only controls the transactions to the account during the child’s minority. A “minor” is defined in § 43-2702(11) as an individual who has not attained the age of twenty-one years. Any funds withdrawn must be spent on the minor and the minor may not have access to the account until reaching twenty-one years of age. Although the bank does not have to verify that funds withdrawn are actually spent on the minor, the UTMA does allow for the minor and other third parties to sue the custodian for specific transactions outlined in § 43-2718.
B. Account Creation
An UTMA account may be created by a donor, court order, will, debtor or personal representative of an estate.
C. Account Titling
Generally, the account is styled as: “John Smith, as custodian for John Smith, Jr. (name of minor) under the Nebraska Uniform Transfers to Minors Act”or “John Smith, Jr. (name of minor), John Smith, as custodian, UTMA.”
D. Documentation
The social security number of the minor is to be used for TIN compliance. Only one authorized signer is allowed per account and only one minor as beneficiary is allowed per account. No other legal documents are required to set up a UTMA account; the account styling creates the irrevocable nature of the account.
E. Custodial Powers
Only one custodian may be appointed to an UTMA account at any time. A custodian may use the account for any legitimate purpose to or for the minor’s benefit and there is no duty to inquire if the use is appropriate; however, the minor may have a cause of action against the custodian for misuse of custodial property.
F. Financial Institution Protection
A financial institution need not determine if there is a donor, if the custodian is acting appropriately or if the documents proffered are accurate.
G. Successor Custodian and Minor’s Authority
If a custodian is ineligible, dies or becomes incapacitated without having designated a successor, a minor attaining the age of 14 may designate a successor custodian. The selection is limited to an adult family-member, conservator or trust company.