Wealth &
Protection Planning

Custodial Accounts

Description

Custodial accounts are governed by laws adopted by each 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. 

Custodial accounts are designed specifically to allow adults to make irrevocable gifts to minors in the form of cash or securities.  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 the age of termination, he or she 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. 

Objective
  • To provide individuals with an account that allows for the transfer of ownership of securities or cash from a donor/transferor to a minor.

Custodial accounts may be appropriate for an investor wishing to make an irrevocable gift, in the form of securities or cash, to a minor.

Product Features
  • Eligibility - With each custodial account, only one minor may be named and only one adult may act in the capacity of custodian.  The current custodian may not be changed unless he or she resigns or becomes incapacitated, or a change is made by an order of the court. 
  • Contributions - Anyone can contribute, regardless of income, and there are no contribution limits.  However, there is an annual federal gift tax exclusion amount of $14,000 per contribution per beneficiary.  
  • Distributions - Funds are set aside solely for the beneficiary; there are no other limitations on distributions.  
  • Tax Considerations - A portion of the earnings may be federally tax-exempt; some income may be taxed annually at the beneficiary's and/or parent's rate (also known as the "Kiddie Tax").  Consult a qualified tax professional regarding specific questions about tax consequences.  
  • Financial Aid Considerations - Considered an asset of the student, this type of account generally has greater impact on financial aid eligibility.

Contact a STRIVE Wealth Advisor for more information about custodial accounts. 

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