Custodial Accounts 

 

Help a child get a head start in life with a custodial account.

A custodial account can be everything from a bank account to a trust fund.

Custodial accounts are often established for use with the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA).

An adult acts as caretaker of a child’s investments. The account realizes the benefits of compound interest and potential investment growth over a significant amount of time.

Custodial account assets are used exclusively for the child's benefit.

Gifts contributed to a custodial account:

  • Irrevocable
  • Become property of the child
  • No limit is set on total assets that may be transferred

A custodian:

  • Acts in the best interests of the child
  • Responsible for all paperwork and recordkeeping

Only one custodian and one minor are allowed per custodial account and the Social Security number of the child will be used for the account.

As the investment vehicles in the account increase in value or possibly receive dividends, income and capital gains taxes will be due. The child must generally pay taxes due on income earned in a custodial account. The age of the child and the total unearned income will determine the tax rate.

The child receives complete control of the assets when becoming an adult. The age of majority varies by state, but falls between 18 and 21 years of age. If you are leery of turning the assets of the account over to your child free and clear when they attain the age of majority, then a different type of arrangement will be better suited for your needs.

Each state has enacted legislation that makes custodial accounts available but not every state's legislation is the same.

Custodial accounts are available through Northwestern Mutual Investment Services, LLC.

All securities are offered through Northwestern Mutual Investment Services LLC, (NMIS), Suite 600, 611 E. Wisconsin Avenue, Milwaukee, WI 53202, 1-866-664-7737. Member FINRA and SIPC. NMIS is wholly owned by Northwestern Mutual.

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