Custodial accounts do not belong to the adult acting as a custodian. The purpose of a custodial account is to establish and protect assets for the benefit of a minor child. The custodial account is actually in the child's name, although it is controlled by an adult custodian until the child reaches adulthood. A custodial account will automatically close when the custodian releases the assets to the new adult. But the custodian has no authority to close a custodial account before then. A custodial account can only be transferred to another custodian on the child's behalf.
UGMA and UTMA
Custodial accounts fall under the Uniform Gift to Minors Act and Uniform Transfers to Minors Act. These accounts require an adult to serve as custodian for a minor child, who actually owns the assets in the account. The custodian and other donors can give any amount of cash, stocks and bonds to a custodial account with no limits. Under UGMA, when a child reaches the legal age of adulthood -- age 18 to 21 in most states -- the account is transferred to the child, who is able to do whatever she wishes with it. Under UTMA, however, the custodian can withhold the money from the child until age 25 in most states.
Donors cannot take back any gifts they make to a child's custodial account under laws governing the UGMA or UTMA. All donations to custodial accounts become the property of the minor child, and the minor child is not legally allowed to return any gifts to donors. Donors give up all rights to any assets they donate to a child's custodial account. Even if a custodian or parent becomes worried that a child will not use the money wisely when they reach adulthood, there is nothing anyone can do to stop the child from receiving it when the time comes. This should be an important consideration when opening and funding custodial accounts.
Death of the Minor
In the unfortunate event that the child who owns the custodian account dies before reaching the age of adulthood, the account still belongs to the child. The assets are not passed to the child's parents or to the custodian of the account. The cash and securities in the custodial account are passed to the minor's estate.
Death of the Custodian
Even the death or resignation of the custodian would not warrant the closing of a custodial account. If a custodian were to die before the account's beneficiary reached adulthood, either the donor of the custodial account or a court of law would would need to appoint a new custodian.
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