Custodial Account
What Is a Custodial Account?
A custodial account is a financial account managed by an adult on behalf of a minor. The custodian oversees the account and manages its assets until the child reaches the age of majority.
Custodial accounts are commonly created under laws such as the UGMA or UTMA.
Why It Matters
Custodial accounts allow parents or relatives to save and invest money for children while ensuring responsible financial management until the child becomes an adult.
They provide a simple structure for transferring financial assets to minors.
How Custodial Accounts Work
An adult custodian manages the account for the benefit of the minor.
Typical features include:
- deposits made by family members
- investment growth over time
- financial oversight by the custodian
Once the minor reaches adulthood, the account becomes fully theirs.
Example
A grandparent investing money for a grandchild through a UTMA custodial account is using a custodial account structure.
Custodial Account vs Trust
- Custodial accounts are simpler and easier to establish.
- Trusts involve more complex legal structures and oversight.
FAQs About Custodial Accounts
Who controls the account?
The custodian manages the account until adulthood.
Can funds be used before adulthood?
Yes, if used for the minor’s benefit.
Does the minor eventually gain ownership?
Yes. Ownership transfers at the age of majority.
Related Terms
