Custodial account

A custodial account is a kind of account created for a minor. Under this kind of arrangement, an adult, usually a parent, relative, or legal guardian, serves as the administrator of the account until the minor reaches legal age. This may be at age 18 or 21, depending on the laws that govern the particular territory. Such an account may be created by a bank or other types of investment companies.

Since an adult manages the minor’s account, his approval is necessary, should the minor wish to engage in transactions. Creating such an account is usually a way of ensuring that the minor for whom it is created enjoys a certain level of financial security.

The parent or guardian of the child may arrange this setup to make sure that the child will have the necessary resources available for his financial needs, during and after his teenage years. The account may also be created as a way of helping the child start a new life. The child then has the option of using the funds to support himself as he enters college, or he can use it as capital for his own business. Of course, these are ideal scenarios.

The manner in which the child handles these assets once he reaches legal age depends on his level of wisdom and maturity, which cannot be guaranteed in many situations.

The account may be a mutual fund or another specific product offered by the bank or investment company. It may also come in the form of a savings account, especially if it is clear that it is being created for a minor by the custodian. In cases wherein funds are transferred from another account to a custodial account, it is important for the adult to remember that once the transfer has been made, the funds cannot be taken back.