Claims Against Custodial Property
When someone has a legal claim tied to custodial property, they can go after the property directly. The claim is brought against the custodian in the custodial role. This works whether or not the custodian or the minor bears personal liability.
A claim based on a contract entered into by a custodian acting in a custodial capacity, an obligation arising from the ownership or control of custodial property or a tort committed during the custodianship may be asserted against the custodial property by proceeding against the custodian in the custodial capacity, whether or not the custodian or the minor is personally liable.
A.R.S. § 14-7667(A)This structure gives creditors a clear path to recovery from the property. At the same time, it protects the individuals involved from automatic personal exposure.
Personal Liability Protections
The statute creates a practical shield for custodians. On the contract side, a custodian is not personally liable if the contract identifies the custodial role. If a custodian signs a contract without disclosing that role, the protection goes away.
A custodian is not personally liable for either: 1. A contract properly entered into in the custodial capacity unless the custodian fails to reveal that capacity and to identify the custodianship in the contract.
A.R.S. § 14-7667(B)For torts and property obligations, the custodian is only personally liable if they are personally at fault. The same rule applies to the minor. A minor is not on the hook unless they personally caused the harm.
Tax Considerations for Custodial Accounts
Income earned in a UTMA account may have tax consequences. Investment gains and interest are generally taxed at the child's rate. This rate is often lower than the parent's rate.
However, the "kiddie tax" rules may apply when unearned income exceeds certain limits. These protections encourage responsible people to serve as custodians. They do so without fear of open-ended personal exposure.