Saving for Your Children’s Future at F&A
Custodial Accounts, What Are They All About?
For tax and other reasons, parents, grandparents and others sometimes want to transfer ownership of cash and other financial assets to children who are too young to handle such assets. One way to do this is to establish a trust. As an alternative, a Uniform Transfers to Minors Act (or Uniform Gifts to Minors Act) custodial account may be established, which may be simpler, cheaper, and faster than a trust.
Property held in a custodial account is owned by the child. Even though the child will not have control of the property until later, the child is the owner as soon as property is transferred to the account.
You Can’t Take the Money Back
Once you’ve transferred assets into a custodial account, you’re not permitted to take them back. Those assets belong to the child. Never transfer assets to a custodial account if you have any concern that you may need to recover those assets later.
As custodian, you must account for where the money went. If you take money from the account to buy a computer for your child, make a permanent record of this fact.
One Child Only
You aren’t allowed to transfer money from one child’s custodial account to an account owned by a different child. A trust can be set up for the benefit of all your children; a custodial account, on the other hand, is owned directly by the child named at the time it was established.
If you’re concerned about estate taxes, you may wish to name someone other than yourself as custodian. The reason is if you are named as custodian and you die before the account terminates, the account may be included in your estate. This is true even though the transfers to the account are completed gifts. The account may be included in your estate because you retained the power to determine how your gift will be applied for the benefit of the minor. You may be able to avoid the problem by naming as custodian someone who will not make any gifts to the account. For example, you might name a grandparent as the custodian. For advice regarding estate planning, speak to an attorney.
If you use the assets of the custodial account to satisfy your legal obligation to support your child, you receive the benefit of that income. Accordingly, you may have to pay income taxes. You may be able to avoid this problem if you use the account only for items that supplement your legal obligation to support your child. For information and advice regarding any income tax ramifications related to custodial accounts, consult a professional tax advisor.
Some people think of a custodial account as a good way to save for college, and learn only later that the account causes a reduction in financial aid. Under current law, assets owned by the child (including any assets in a custodial account for the benefit of that child) may count much more heavily than parental assets in determining the child’s qualifications for financial aid. For information and advice regarding these matters, consult with an attorney, your investment advisor, and/or a financial aid counselor.
Termination of Account
The account terminates when the child reaches the specified age in the account agreement. At that time, the custodian must transfer the account funds to the minor (now an adult). For example, in California a custodial account will terminate when the minor attains age 18 unless you specify a later age, up to age 21. (A custodial account established under a trust or a will may terminate as late as age 25.) For information and advice regarding these trusts and wills, consult with a trust attorney and/or qualified financial planner.
Before establishing a custodial account, you should consult with an attorney and a professional tax advisor and carefully consider your objectives and other ways you may achieve them. You may find that you’re better off putting money into an educational IRA, 529-college savings plan, or another investment type instead of a custodial account. Another possibility is to set up a trust. For detailed information on the Credit Union’s custodial accounts and other investment possibilities for your child, call your Credit Union at 800-222-1226.
THIS GUIDE IS NOT INTENDED NOR SHOULD YOU UNDERSTAND IT TO BE LEGAL OR TAX ADVICE. YOU ARE STRONGLY URGED TO CONSULT WITH YOUR OWN ATTORNEY AND PROFESSIONAL TAX ADVISOR REGARDING CUSTODIAL ACCOUNTS PRIOR TO COMPLETING THE CUSTODIAL ACCOUNT AGREEMENT.
Custodial Accounts (CUTMA) Account Requirements
- The custodian must be a current member of F&A.
- The minor must be eligible for membership.
- One successor custodian must be listed. This person does not need to be a member nor be eligible for membership.
- The minor must be under the age of 21.
- Court orders, wills and trusts may extend the age requirement.
Cost to Open
There are no fees to open a custodial account just, a minimum initial deposit of $5.
Dividends are reported under the minor’s social security number or Tax Identification Number.
Transactions (Deposits/ Withdraws/ Transfers) †
Home Banking, Checks, Cash, Shared Branches, F&A Office
Type of Shares Available
Savings Accounts, Money Market, and Term Share Certificates
Loans on Custodial Accounts
Loans are not permitted. Our Youth Accounts offer loans and more.
Court Ordered Accounts
If you have been required by the court to open a Custodial Account, we must have the court order and court instructions before we can open the account.
†Deposits and withdrawals may be limited due to specific account limitations required by court order, the member or F&A.