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How Are Funds Administered For Children Under Custodial Accounts?

Child holding cash money savings account learning the value of money and not spending

What are Custodial Accounts?

The term “custodial accounts” refers to accounts created under the Uniform Gifts to Minors Act (“UGMA”) or the Uniform Transfers to Minors Act (“UTMA”).  State law dictates which regime (or perhaps both regimes) are available.

Custodial accounts are used when, typically, gifts are made by parents for the benefit of a minor child (though any person can create a custodial account for any minor).  To cause an asset to be held as a custodial account, title to the account should be:  “[Name of Custodian], as Custodian under the UGMA/UTMA for the benefit of [Donee’s Name], a minor”.  When an account is titled in that fashion, the statutory rules that apply to the custodial account are made to apply to the account created.

The Custodian is In Charge of the Account

The custodian is in charge of the account.  The custodian can decide how the funds in the account are invested, and the custodian can decide what distributions are made for the benefit of the donee from the account.  Certain states allow the person creating the account to limit distributions only for the support, health, maintenance and education of the donee, though the creator of the account can decide not to have that limit apply if desired.

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