A trust account holds property or assets for a person, including a minor who cannot legally own certain types of property until he reaches the age of adulthood as designated by the minor’s resident state. A minor has a custodial trust, since a custodian must be appointed legally to manage the trust for the minor.
Minors and Contracts
In most states, minors cannot enter a binding contract. This means these minors cannot own financial instruments such as bonds, stocks, annuities and even life insurance policies. If the parents of a minor want to transfer the ownership of different financial instruments to their child, they must do so through a trust. The trust manages the financial instrument for the minor until he reaches adulthood in the eyes of the law.
A custodian or trustee of a trust fund manages the assets held in the trust. The assets still remain the property of the minor, even though the minor cannot access the trust fund until he reaches the state’s definition of adulthood. The person who originally gifted the assets to the trust may be the custodian, or another adult may act as the custodian of the trust. The custodian decides whether the trust’s property should be sold or whether earnings from investments in the trust should be reinvested into those same investments. A custodian may also withdraw funds from the trust, using them to benefit the minor’s life.
A custodian trust terminates once the owner of the trust reaches the age of adulthood for his state. Depending on the state, the person who creates the trust may specify that the trust does not terminate until the trust owner reaches an age greater than the state’s age of adulthood. Once the trust terminates, the trust owner is no longer considered a minor by the law and so the trust no longer needs a custodian to manage the trust’s assets. The trust’s custodian must transfer the trust’s assets to the trust’s owner once the trust reaches the point of termination.
Under a trust, the person who transfers the assets or property to the minor can still be alive at the time of the property transfer, instead of having deceased when the property transfers using a legal will. Because of this difference between trusts and wills, the custodian of the trust can be the person who transfers all or part of the assets to the trust. The custodian may be an individual, such as the minor’s parent, grandparent, aunt, uncle or anyone else who is a legal adult. The custodian may also be a company that manages custodial trusts.