Can a Minor or a UTMA Custodial Account Invest in a Syndication?
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Usually only through an adult. A minor generally cannot sign a binding contract, so the normal route is a custodial account under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), where an adult custodian signs for the child. The assets belong to the minor, which matters for accredited status, and many sponsors simply decline these accounts because of the paperwork and risk.
Why can a minor not just sign?
Contract law in most states lets a minor cancel (disaffirm) a contract made before adulthood. A sponsor who accepted money from a minor could face a demand for it back after closing, long after the money was spent on the property. That is why a minor does not sign a subscription agreement in their own name.
How does a custodial account work?
Under UTMA or UGMA, an adult gives assets to a custodian who manages them for the minor until the age set by state law, commonly 18 to 21. The custodian signs the subscription as custodian for the child. The investment belongs to the minor and the custodian must act in the minor's interest. See how investors commit and wire.
Is the minor or the parent accredited?
The test is applied to the owner of the asset. A UTMA account belongs to the minor, so you look at the minor's own net worth and income, not the parent's. A child rarely meets the thresholds in Rule 501(a) (17 CFR 230.501). In a 506(c) deal, that usually ends the question. In a 506(b) deal, a non-accredited investor must be sophisticated and receive the disclosure in Rule 502(b), and that sophistication is judged on the investor and its representative. See Rule 502(b) disclosure.
What does the custodian risk?
A custodian who puts a child's savings into an illiquid deal that loses money can be accused of breaching the duty to the minor, and state law may require a prudent person standard. Many custodians are advised not to. A syndication also runs five to ten years, so the child may come of age before a sale, and the interest then belongs to the adult. See what happens when an investor dies for the transfer mechanics that often follow.
Should a sponsor accept it?
The simplest answer is no. The paperwork is heavier, the accredited test usually fails, the custodian has duties a sponsor does not control and a later challenge is possible. Write the policy in your subscription booklet so nobody is surprised (subscription booklet and investor questionnaire).
What can a parent do instead?
A parent who is accredited can invest in their own name and later gift part of the interest to a child, subject to the operating agreement's transfer rules (gifting a syndication interest). Or invest through a trust set up for the child, which is a different structure with its own accredited rules (accredited investor trust requirements).
Our take
A child's name on a subscription looks like a nice gift and acts like a legal problem. If a family wants to build a child's wealth through real estate, a gift of an interest from an accredited parent is cleaner than a custodial subscription.
Trade-offs and who this is not for
- It limits who can say yes. That is the point.
- Not for deals that need every dollar. A minor's money invites a dispute.
- Common mistake: counting the parent's income for a child's account. The test looks at the owner.
- Rules differ by state. Talk to counsel.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
Your subscription booklet should say who may invest and how, so a minor's account is a clear no or a clear yes before any money moves. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Can a 17 year old invest in my syndication?
Not in their own name. A custodian could, but the deal still has to fit your exemption and your policy.
Is a UTMA account accredited?
It is tested on the minor's own assets. Most children do not meet the thresholds.
Can a parent sign for a child?
A parent who is the custodian of a UTMA account can sign as custodian. Otherwise they need legal authority.
What happens when the minor turns 18 or 21?
The custodian hands over the property, including the investment, under state law. The operating agreement's transfer terms still apply.
Sources
This article is general information, not legal, tax or investment advice. Talk to a securities attorney before you market an offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.