Custodial brokerage accounts for minors
All custodial assets must be used "for the use and benefit of the minor. If the custodian is the child's parent or legal guardian, it's a good idea to get advice from a financial advisor regarding allowed distributions before making any withdrawal from the account for the benefit of the child.
You shouldn't transfer significant assets to a custodial account if you think the child may need to apply for financial aid. Assets held in a child's name, as in a custodial account, weigh more heavily against financial aid eligibility than do the parents' assets or assets held in a account or an education savings account ESA.
In addition, a custodial account doesn't have the same tax advantages as a or an ESA. Finally, s and ESAs offer parents more control, including the ability to change the account beneficiary. Custodial accounts are simpler to establish than trusts, which generally require more planning and the help of an attorney.
However, a trust can offer more flexibility, control, and protection than a custodial account. For example, you can designate beneficiaries for a trust. Any investment income—such as dividends, interest, or earnings—generated by account assets is considered the child's income and taxed at the child's tax rate once the child reaches age This rule applies to custodial accounts as well as other forms of gifts.
If you want to transfer a large sum of money to a minor for example, tens of thousands of dollars , doing so as part of a comprehensive estate plan involving a trust is often the best choice. If a donor acting as the custodian dies before the account terminates, the account value will be included in the donor's estate for estate tax purposes.
If a minor dies before the age of majority, a custodial account is considered part of the minor's estate and is distributed according to state law. As with any investment, it's possible to lose money by investing in a plan. Additionally, by investing in a plan outside your state, you may lose tax benefits offered by your own state's plan.
Is it time to talk to your kids about investing? Refresh yourself on the basics and get tips on explaining investment topics to children of all ages.
The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager.
Give a gift to a child—and introduce investing skills early A custodial account can be an excellent way to make a financial gift to a child—whether your own, a relative's, or a friend's.
Frequently asked questions FAQs for custodial accounts Review these FAQs to determine if a custodial account is right for your particular circumstances. Can I change my mind and take back assets after I've set up a custodial account? What are the custodian's responsibilities?
At what age does a child take control of the assets in the account? According to this legal theory, each securities position with respect to a particular class of securities which appears in the brokerage firm's omnibus securities account is a trust fund for the benefit of customers sharing participation in that position.
To exactly what extent the operation of such a theory would be restricted by Article 8 and the Securities Investor Protection Act in future litigation is not obvious, and is perhaps irrelevant as a practical matter because of the level of detail in the legislation mentioned. The trustee of a nominee trust , being a directed agent of the beneficiaries, cannot even bind the trust estate to a debt in a capacity that is sufficiently separate from the capacity of the beneficiaries to contract the same debt themselves.
For this reason, the nominee trust is not a debtor-person for bankruptcy purposes and therefore cannot obtain bankruptcy protection like it were a corporation. This is one reason why nominee trusts are not considered to be actual trusts by some lawyers. In England, there is no Article 8 and therefore principles of common law may operate with greater freedom.
A securities intermediary is naturally characterized as a trustee  for the benefit of clients holding interests in those securities. From Wikipedia, the free encyclopedia. Retrieved from " https: Views Read Edit View history.
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