Question & Answer

Question: We recently closed a checking account that is in overdraft and are preparing to cure the OD condition by offsetting the customer's savings account. However, the savings account is a custodial account for the customer's minor child. The account agreement contains customary right of set-off language that includes the statement, "This right of set-off does not apply to this account if?the debtors' right of withdrawal arises only in a representative capacity." The custodial account is held under the social security number of the custodian, not the child's. Can we offset the custodial account?

Answer: If the account is a simple Totten trust account- 'in-trust-for' (I/T/F) account; or a 'payable on death' (POD) account, and the control over the account is held by the depositor and not the beneficiary, then the answer is yes, you can hit it to recover your loss. Depositors cannot hide funds from the government nor protect them from claims by adding I/T/F or POD to their account titles.

If, however, you have either a UTMA (Uniform Transfer to Minors Act) account, an UGMA (Uniform Gift to Minors Act) account, or a trust account with a trust agreement (which you should have on file, and would have to read carefully), then you can't offset against the account.

As an added caution-if it's an IRA-you better not! There is recent litigation where financial institutions are being sued by depositors in cases where IRA accounts were used as set-offs. Thanks to Mark Hargrave, Esq. with the firm of Shook, Hardy and Bacon for his help with this question.

Copyright © 1997 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 7, No. 10, 8/97