UTMA: PUTTING MINORS IN TITLE TO REAL PROPERTY
by Tyler Mertes, ATG Law Clerk

The Uniform Transfers to Minors Act (UTMA) allows a person to convey land to minors, while having the property well cared for until the minor reaches a suitable age. Related versions of UTMA have been adopted in Illinois, Indiana, and Wisconsin. The ability to alienate property is different under UTMA as compared to a typical guardianship situation in which a minor has a court-appointed guardian. The following is an introduction to UTMA, as well as a brief sojourn into the differences between UTMA and traditional guardianship.

The Uniform Transfers to Minors Act

The Uniform Transfers to Minors Act allows a person to transfer, inter alia, an interest in property to a minor, and to have that interest managed by a custodian. 760 ILCS 20 et seq; IC 30-2-8.5; Wis Stat § 880.6 et seq. To effectuate a transfer under this Act, the conveyance must be made into the name of the transferor, an adult other than the transferor, or a trust company. 760 ILCS 20/10(5); IC 30-2-8.5-24; Wis Stat § 880.65(1)(e). The conveyance must be followed by the following words:

"As custodian for [name of minor] under the [name of state] Uniform Transfers to Minors Act." Id.

Illinois requires that the conveyance of real property be recorded by either the transferor or the custodian or executed by the custodian using a statement similar in substance to the following:

"[Name of custodian] hereby acknowledges receipt of the above property described [description of property] as custodian for the minor under the Illinois Uniform Transfers To Minors Act." 760 ILCS 20/10(5).

Custodian's Responsibilities

The Act outlines certain responsibilities of the custodian: (1) Take control of the property, (2) Register or record title if appropriate, and (3) Manage, invest, and reinvest the property." 760 ILCS 20/13; IC 30-2-8.5-27; Wis Stat § 880.665. In Illinois, the custodian must invest the property as would "a prudent person of discretion and intelligence who is seeking a reasonable income and the preservation of his capital." 760 ILCS 20/13(3)(b). In Wisconsin and Indiana, the custodian must invest the property as would "a prudent person dealing with the property of another." IC 30-2-8.5-27(3)(b); Wis Stat § 880.665(2). Further, in Wisconsin and Indiana, if a custodian possesses a special skill and was named custodian because of this skill, that person must use that special skill when managing the custodial property.Id.

Successor Custodians, Resignation, Removal

A person may nominate a custodian and successor custodians. A nominated custodian may decline to serve by delivering a disclaimer to the person who made the nomination. 760 ILCS 20/19(a); IC 30-2-8.5-33(a); Wis Stat § 880.698(1). In the event that the nominated custodian does not agree to serve and a successor custodian was not named, the person who made the nomination may at that point nominate a successor custodian.Id. In Illinois, the transferor retains the right to designate a successor custodian by executing and dating an instrument of designation and delivering it to the current custodian. 760 ILCS 20/19(b). This clause appears to allow a transferor to designate a successor custodian after the initial custodian has taken control of the property.

Further, in Illinois a custodian may designate a successor custodian at any time when a vacancy might occur.Id. In Wisconsin and Indiana, however, a custodian may designate a successor custodian at any time, regardless of the imminence of a vacancy. IC 30-2-8.5-33(b); Wis Stat § 880.695(2). In all three states the tenure of a successor custodian does not begin until the original custodian "resigns, dies, becomes incapacitated, or is removed." 760 ILCS 20/19(b); IC 30-2-8.5-33(b); Wis Stat § 880.695(2).

A custodian may resign at any time by delivering written notice to the successor custodian or to the minor, if the minor has attained the age of 14 years. 760 ILCS 20/19(c); IC 30-2-8.5-33(c); Wis Stat § 880.695(3). The resigning custodian must deliver the custodial property to the successor custodian.Id. Further, the transferor, an adult member of the minor's family, a guardian, or the minor (if 14) may petition the court to remove a custodian for cause and designate a successor custodian. 760 ILCS 20/19(f); IC 30-2-8.5-33(f); Wis Stat § 880.695(6).

In the event that a custodian is unable to serve because of incapacitation or death and no successor custodian was named, the minor, if 14 years of age, may name a successor custodian. If the minor is not 14 years old or does not name a custodian within 60 days, then the guardian of the minor becomes custodian. If the minor does not have a guardian, then any interested party (including the transferor) may petition the court to designate a successor custodian. 760 ILCS 20/19(d); IC 30-2-8.5-33(d); Wis Stat § 880.695(4).

Termination of the Custodial Estate

The custodial estate may be terminated differently depending on the state. In Illinois, the property transfers to the minor, or the minor's estate, upon the earlier of three events:

  1. When the minor turns 21 if the property was granted pursuant to 760 ILCS 20/5 or Section 20/6. 760 ILCS 20/21(1).
  2. When the minor turns 18 if the property was granted pursuant to 760 ILCS 20/7 or Section 20/8. 760 ILCS 20/21(2); 755 ILCS 5/11-1.
  3. Upon the death of the minor, the property transfers to the minor's estate.

     

In the event of the minor's death, no conveyance to the minor's estate is necessary to terminate the custodianship. 760 ILCS 20/21(3)(b). Wisconsin's procedure for termination is similar to that in Illinois. Wis Stat § 880.705. Under Indiana law, however, custodial property transfers to the minor upon the minor reaching the age of 21 or the minor's death. IC 30-2-8.5-35.

The Difference between Guardians and Custodians

Guardians of a ward are more restricted than custodians under UTMA in their ability to alienate real estate. In all three states, a guardian may sell or mortgage a ward's real estate only with the permission of the court. 755 ILCS 5/20-3; IC 29-3-7-5(b); Wis Stat § 786.01.

Further, custodians and guardians have different responsibilities with respect to the property. In Illinois, guardians must manage the ward's property "frugally and shall apply the income of the principal of the estate so far as necessary for the comfort ... support and education of the ward." 755 ILCS 5/11-13(b). This is in contrast to a custodian's responsibility under UTMA, which merely requires that the custodian act as "a prudent person of discretion and intelligence who is seeking a reasonable income and the preservation of his capital." 760 ILCS 20/13(3)(b). In Indiana, guardians must manage a minor's assets as would persons of "prudence, discretion, and intelligence exercise in the management of their own affairs." IC 30-4-3-3(c). In Wisconsin, guardians must follow the "prudent person rule," which is similar to the standard required of custodians in that state. The "prudent person rule" requires that a guardian manage a ward's property with "prudence, discretion, and intelligence." Wis Stat § 881.01.

Properly creating a guardianship is more difficult than conveying property to a minor under UTMA. InIn re Guardianship of Thompson, 263 Ill App 3d 1130, 225 Ill Dec 384, 683 NE2d 552 (4th D 1994), an unpublished opinion, the court strictly construed 755 ILCS 5/11a-8, a part of the Probate Act dealing with appointment of guardianship for disabled adults. While not of precedential value,Thompsonis noteworthy because of the court's literal reading of the requirements for appointment. In that case the court held an appointment invalid because no petition was filed to adjudicate the ward disabled as per the provisions of 755 ILCS 5/11a-2. Under 755 ILCS 5/11-8, a person petitioning for guardian of a minor must follow similar steps. GivenThompsonit appears that a court might also strictly construe Section 5/11-8, requiring rigid adherence to the letter of the law by a person filing a petition for guardian of a minor.

Conclusion

Illinois, Indiana, and Wisconsin have all adopted some form of UTMA. Although the states vary in their interpretations of UTMA, they retain the same goal of protecting land conveyed to minors. As such, UTMA is a good way in which to convey interest in property to a minor.

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