Selecting a Custodial Account
Custodial Accounts are designed specifically to allow adults to make irrevocable gifts to minors in the form of cash or securities. Once the transfer is made from the donor to the minor, the minor actually owns the securities and the donor/transferor no longer has any legal access or authority over the funds. However, the minor is not able to make investment decisions concerning his or her portfolio until an age of majority determined by state law. A custodian administers the securities until the minor reaches the age of majority. ASIA will not take custody of securities, assets or funds. Custodial Accounts are governed by laws adopted by each individual state. These laws include: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA). Every state has enacted the UGMA. All but two states, South Carolina and Vermont, have adopted the UTMA.
To provide individuals with an account that allows for the transfer of ownership of securities or cash from a donor/transferor to a minor. The account is administered by an adult, or custodian, until the minor reaches the age of termination as determined by state law. Once the child reaches age of majority, the child will have complete control of the assets. At this time the assets should be moved out of the custodial account and into
the child’s name.
Custodial Accounts are suitable for an investor wishing to make an irrevocable gift, in the form of securities or cash, to a minor. It is important to note that all assets transferred under UGMA and UTMA law represent irrevocable transfers. This means that the child owns the assets even if he or she decides not to go to college.
- Transfer of Ownership – Once the transfer is made from the donor/transferor to the minor, the donor/transferor gives up all rights to the property and the transfer may not be revoked or changed.
- One Minor, One Custodian – With each custodial account only one minor may be named and only one adult may act in the capacity of custodian for that account. The current custodian may not be changed unless the current custodian resigns, becomes incapacitated, or a change is made by an order of the court.
- Naming of the Custodian – The custodian may be the donor/transferor, or the donor/transferor may name any adult to act as custodian of the account.
- Estate Feature – In the event of the minor’s death, the assets in the custodial account become property of the minor’s estate.
- Tax Advantages – There are currently tax advantages for minors with unearned income. Specific questions regarding tax consequences for custodial accounts should be referred to a qualified tax professional.