This adult acts as the account custodian — that’s why the name “custodial account” — for the minor, who is the beneficiary and technical owner of the account. Custodial accounts for minors come in two varieties.

What’s the best bank for a child?

Best Checking Accounts for Kids Under Age 18

1. Copper Banking. A Banking Solution Built for Teens.
2. Axos Bank First Checking.
3. Alliant Credit Union Free Teen Checking Account.
4. Capital One MONEY Teen Checking Account.
5. Wells Fargo Clear Access Banking.
6. Chase High School Checking.
7. Chase First Banking.

As the name implies, a custodial account is a financial account that is in one person’s name but is controlled by another person. Traditionally, a custodial account refers to a managed account that an adult opens on behalf of a minor. Once the child is no longer a minor, the beneficiary assumes control of the account.

Is a mutual fund a custodial account?

The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence).

What can a minor do with a custodial account?

When funds are transferred into a minor child’s custodial account at a financial institution or brokerage firm, the funds now irrevocably belong to that child. While the parent can, and usually does, function as the custodian (manager) of the account, the money can legally be used only for expenditures that benefit that child.

When does a custodial account transfer to a named beneficiary?

Once the minor reaches the legal age of adulthood in their state, control of the account officially transfers from the custodian to the named beneficiary, at which point they claim full control and use of the funds. Should the minor die before reaching majority, the account will become part of the child’s estate.

When does a child gain control of a custodial account?

Under applicable state law (most states have UTMA regimes these days), your child will gain full legal control over the account once he or she ceases to be a minor. This will happen somewhere between age 18 and 21 (in most states it’s 21). Remember: nice little kids can turn into obnoxious teenagers,…

Who is the owner of a custodial account?

At that point, the beneficiary becomes the account owner, and must be given complete authority over the account. Because transfers to custodial accounts are gifts to the minor beneficiary, each parent can give each of his or her children $15,000 every year ($30,000 from a couple) without having to use any lifetime gift tax exemption.