Custodial Accounts (UGMA/UTMA): Taxation, Margin Prohibition, and Irrevocability
Which statement regarding a custodial account established under the Uniform Transfers to Minors Act (UTMA) is ACCURATE?
Under UGMA/UTMA rules: (1) There can only be ONE custodian and ONE minor per account; (2) All gifts/transfers are IRREVOCABLE; (3) The minor is the beneficial owner and the account is registered under the MINOR'S Social Security Number; (4) The account can NEVER be a margin account (cash only, no short selling, no uncovered options); and (5) Assets must be used solely for the benefit of the minor..
Complete Analysis & Legal Rationale
Under UGMA/UTMA rules: (1) There can only be ONE custodian and ONE minor per account; (2) All gifts/transfers are IRREVOCABLE; (3) The minor is the beneficial owner and the account is registered under the MINOR'S Social Security Number; (4) The account can NEVER be a margin account (cash only, no short selling, no uncovered options); and (5) Assets must be used solely for the benefit of the minor.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately notes irrevocable gifts, minor's SSN, and strict prohibition on margin trading.
Custodians cannot use custodial funds for parental support or living obligations.
Margin, short sales, and uncovered options are strictly prohibited.
UGMA/UTMA rules allow ONLY ONE custodian and ONE minor per account.
Official Standard: Governs custodial fiduciary duties, tax reporting, and cash trading requirements.