![]() ![]() They will be considered the child's assets, reducing the amount of financial aid they are eligible for. May Affect Financial Aid ProspectsĬustodial accounts can impact the financial aid prospects of the child when they go to college. At the age of majority, the minor inherits the entirety of the account's holdings, and guardians lose control of the funds. Drawbacks of Custodial AccountsĬustodial accounts come with some drawbacks that must be considered: Loss of Control at the Age of Majorityĭeposits made to the account are irreversible and irrevocable. They are less expensive to establish because there are no setup or administration costs. Less Expensive to EstablishĬustodial accounts are an excellent alternative to trusts. They can be used for almost anything that would benefit the child, including education, medical expenses, and other essential needs. Only the basic personal information of the child and the custodian is required. Any financial institution, mutual fund company, or brokerage business can open one. Benefits of Custodial AccountsĬustodial accounts are frequently established due to the benefits they provide, such as the following: Easy to Set UpĬustodial accounts are easy to set up. It is also subject to income and contribution limitations. However, its funds can only be used for qualified educational expenses. It helps families afford school-related expenditures for minor beneficiaries. This type of account is solely cash-funded. Coverdell Education Savings Account (ESA) ![]() This type of account can contain financial assets like cash and investments, such as stocks, bonds, and mutual funds. This type of account holds almost any form of an asset, ranging from real estate to intellectual property or even artwork. The following are the main varieties of custodial accounts: Uniform Transfers to Minors Act (UTMA) In case of the minor's death before the age of majority, the account's content will be a part of the child's estate. Ownership and control of the account legally transfer to the child when they reach this age. In some states, a minor is someone under 18, while in others, they are under 21.īefore the age of majority, undertaking transactions with the account will require the custodian's approval. They have to manage the account prudently and control how the money is spent.Įach state has specific regulations governing the age of majority when children become legally independent from their guardians. The custodian abides by a fiduciary duty to the minor, which means they must act in the child's best interest at all times. However, one main difference is that the account legally belongs to the minor but is managed by the custodian until the child reaches the age of majority. How Do Custodial Accounts Work?Ī custodial account works similarly to any other savings account. This article will focus on custodial accounts being opened for minors. This account can be opened through a financial institution, mutual fund company, or brokerage business.Ī custodial account may also refer to any account maintained by a responsible individual bound by fiduciary duty on behalf of a beneficiary.Ī typical example is an employer-based retirement account managed by a plan administrator for qualified employees. A custodial account is a kind of savings account controlled by an adult on behalf of a minor, also known as a beneficiary. ![]()
0 Comments
Leave a Reply. |