Custodial accounts are similar to charitable trusts set up for minors.
The trusts or accounts are created and governed by the Uniform Gifts to Minors Act, which is abbreviated as UGMA, or it may be set up under the Uniform Transfers to Minors Act, abbreviated as UTMA.
Both the UTMA and the UGMA exist to enable people to set up gift accounts to be transferred to children.
Custodial accounts can also be created for any child or minor whom you select.
Creating custodial accounts provides many benefits for minors.
These accounts are advantageous because they are very simple to set up and operate as compared to trusts.
The person who is creating the account can also ensure that they are the custodian (or select another custodian whom they trust) to handle the account until the minor reaches the appropriate age and is able to access the funds.
The custodian can also determine how the account is used, for instance, college tuition.
However, many feel the greatest benefit of custodial accounts is the generous tax savings accrued by creating the account.
It’s important to understand to realize that once you create a custodial account the account is final and you cannot change your mind.
This is why an attorney should be consulted so that time is taken discussing the benefits and drawbacks before deciding that a custodial account best suits your needs.