NORMAN COHEN v. WENDY COHEN, 258 N.J. Super. 24 (App. Div. 1992), June 29, 1992:

The Uniform Gifts to Minors Act ^[1] provides that a gift “is irrevocable and conveys to the minor an indefeasible vested legal title to the … money….” N.J.S.A. 46:38-17. The relevant statutory grant of authority is found in N.J.S.A. 46:38-27(b), which provides:

(b) The custodian shall pay over to the minor for expenditure by him, or expend on behalf of the minor, so much of or all the custodial property as the custodian deems advisable for the support, maintenance, education, general use and benefit of the minor in the manner, at the time or times, and to the extent that the custodian in his absolute discretion deems suitable and proper, with or without court order, with or without regard to the duty or ability of himself or of any other person to support the minor, and with or without regard to any other funds, income or property of the minor which may be available for any such purpose.

Despite the literal language of the statute, courts which have considered the issue have unanimously held that a custodian of an UGMA account may not use funds in the account to pay or reimburse herself either for expenditures which she makes for her own benefit or for expenditures which she is legally obligated to make from her own funds for the benefit of the minor who is the beneficiary of the custodial account. Newman v. Newman, 123 Cal. App.3d 618, 176 Cal. Rptr. 723 (1981) (A father holding property of his minor children as custodian 30 under the UGMA could not use the proceeds of the property to satisfy a court order for support.); In re Marriage of Wolfert, 42 Colo. App. 433, 598 P.2d 524 (1979) (Where the parents are financially able to support their children, “the court may order that such gifts [UGMA funds] not be used to reduce the legal obligation of support.”); Weisbaum v. Weisbaum, 2 Conn. App. 270, 477 A.2d 690 (1984) (The UGMA’s purpose is not to relieve a parent’s primary duty of support.); Gold v. Gold, 96 Misc.2d 481, 483, 409 N.Y.S.2d 114, 116 (Sup.Ct. 1978) (A mother/custodian is “barred from using the children’s funds for their support, since by reducing her child care obligations, she would receive an indirect financial advantage.”); Sutliff v. Sutliff, 339 Pa.Super. 523, 537-38, 489 A.2d 764, 771 (1985), aff’d, 515 Pa. 393, 528 A.2d 1318 (1987) (Because the burden of supporting minor children must be borne by their parents, “a parent who is able to support his children may not use custodial funds to discharge his support obligation….”); Erdmann v. Erdmann, 67 Wis.2d 116, 226 N.W.2d 439 (1975) (The fund created for the benefit of the children could not be used by the custodian for the children’s support and maintenance.).

In New Jersey, the estate of a minor may not be used for his support and maintenance if those who are legally responsible for the minor have sufficient funds to enable them to fulfill their responsibilities. Cf. Matter of Conda, 104 N.J. 163, 170, 516 A.2d 240 (1986) (citing Rednor v. First Mechanics Nat’l Bank 131 N.J. Eq. 141, 154, 24 A.2d 850 (E. & A. 1942); Smith v. Robinson 83 N.J. Eq. 384, 387, 90 A. 1063 (Ch. 1914); Walling’s Case, 35 N.J. Eq. 105, 106-07 (Prerog.Ct. 1882); and Stephens v. Howard’s Ex’r, 32 N.J. Eq. 244 (Ch. 1880)).

Despite the broad language of the statute purporting to confer wide discretion on the custodian, a custodian who is also a parent cannot properly use assets of a 31 UGMA account to defray the parent’s legal obligations to a child if the parent is financially able to support the child.

The Uniform Gifts to Minors Act provides that

a custodian not compensated for his services is not liable for losses to the custodial property unless they result from his bad faith, intentional wrongdoing or gross negligence or from his failure to maintain the standard of prudence in investing the custodial property provided in this act.

N.J.S.A. 46:38-28(e).

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1. This Act was repealed by the Uniform Transfer to Minors Act, “UTMA” N.J.S.A. 46:38A-1 et seq. in July 2007. [↩]