Personal Finance

Custodial accounts explained

An easy way to transfer assets to your child.

Custodial accounts are some of the most commonly used trust funds when it comes to saving money for the future of a child. The reason for this is that most children are not allowed to own large amounts of assets, so parents are not allowed to simply transfer ownership to their children. This is due to the fact that children cannot own bonds, stocks, annuities, or other forms of investments. However, by putting the money in a trust fund, or custodial account, parents are able to transfer money to their children for the future.

There are two types of custodial accounts, Uniform Gift to Minors Act or Uniform Transfer to Minors Act accounts. The UGMA accounts allow children to own securities or other monetary investments without going through the courts. The UGTA is slightly different in that your children will be able to own property or fine art.

There are a few things that you should consider before you set up a custodial account. The first thing that you should consider is that most of these accounts have an age of trust – for most accounts, this age is 21. At this time, the child will be able to take complete control of the account from his or her parents. In other words, if you are going to give your child assets that are worth a good deal of money, you should make sure that he or she is mature enough to handle control of those assets.

Another thing that you should consider is that you are not able to change your mind after you have transferred the money to your child’s custodial account. After you have transferred the assets, they technically belong to your child and will be held in trust until he or she is of trust age.

The other things that you should consider are that this trust fund might actually be a disadvantage if you are going to save for college. Essentially, the trust fund is going to be taken into account when you apply for financial aid and could result in an overall reduction in the amount of money that your child can get. The reason for this is that since the money is owned by your child, it is counted more heavily in the decision as to whether or not your child should get any financial aid.

However, if your family is high income, you may not be eligible for financial aid anyway – which makes the custodial account a good choice in order to make sure that the right amount of money is already set aside for college.