Information About Custodial Account

A parent or legal guardian will use a custodial account for a child who is too young to own or manage his own bank account. It is a great way to make children start saving money from a young age.

Identification

A custodial account is a bank account that is established by a parent or legal guardian on behalf of an underage child. The parent and child are listed on the account, and the child is the legal owner of the asset, but the parent manages and makes decisions regarding the money on behalf of the child.

Considerations

The custodian of a custodial account cannot change the name of the account owner or take money back. The money must be used for the child's benefit and be accounted for.

Rights

A child who is 14 years old or older has the right to see a listing of transactions and the balance on his custodial account.

Age

Laws on custodial accounts vary by state, but they generally expire by the time the child reaches age 18 or 21. Under the Uniform Transfers to Minors Act, the money must be transferred to the rightful owner (the child).

Warning

Amassing a large sum of money in a custodial account could cause the child's college financial aid award to be reduced. This account counts as an asset. This isn't necessarily a bad thing; it might simply mean the child will not be allowed to take on as many loans (debt) for college.

References

• Fairmark