Adult Children and Custodial Accounts

Parents and grandparents often save money for a child or grandchild for college or other reasons in a “custodial” account (with the parent as custodian) under the Uniform Transfers to Minors Act (UTMA).  When the child reaches 18 or 21 (depending on when the account was set up), legally these funds are no longer under the control of the custodian.  We’ve been told many times that a parent chose to use the parent’s own funds for college instead of spending down the college savings account and now the parent is faced with substantial sums in the child’s control, a concern when the child is not yet ready to manage a large sum, and often not even aware of the account’s existence.  As a financial institution does not notify a child of the account’s existence on the critical birthday, these accounts can remain in existence for years past their maturation date, and even still be in  existence on the eve of a child’s marriage (or unfortunately on the eve of an early divorce).  If your young adult has a custodial account that is substantial, consider persuading your child to create a simple trust for their own benefit, with you in control as Trustee, until he or she reaches a more mature age, for example 25, 35, or older.  The Trust can ease the child into degrees of control over time.  We are happy to discuss this concept with you further.

If you have any questions regarding adult children and custodial accounts, please contact Doris L. Martin, or visit our website.