The Prudent Person Standard
A UTMA custodian is not just holding assets in a drawer. Arizona requires the custodian to collect, hold, manage, invest, and reinvest custodial property. The standard is the same care a prudent person would use when dealing with someone else's property. That means thoughtful decision-making, not reckless speculation.
In dealing with custodial property, a custodian shall observe the standard of care that would be observed by a prudent person dealing with property of another and is not limited by any other statute restricting investments by fiduciaries.
A.R.S. § 14-7662(B)One important detail: a custodian who has special financial skills or was chosen because of their expertise is held to a higher standard. They must actually use that expertise. At the same time, a custodian can choose to keep property exactly as it was received from the transferor without any liability for that decision.
Keeping Property Separate and Records Clear
Mixing custodial property with personal assets is not allowed. Arizona requires the custodian to keep the minor's property clearly identifiable and distinct from everything else. Securities can be held in street name at a brokerage, but the custodial designation must be maintained. Real property must be recorded with the proper UTMA language.
A custodian at all times shall keep custodial property separate and distinct from all other property in a manner sufficient to identify it clearly as custodial property of the minor.
A.R.S. § 14-7662(D)Record-keeping is equally important. The custodian must maintain records of every transaction, including the information needed to prepare the minor's tax returns. A parent, legal representative, or any minor who is at least fourteen can request to inspect those records at reasonable intervals. This transparency protects everyone involved and helps ensure the custodian is fulfilling their responsibilities.
