Custodial Account.
In plain English
The adult, called the custodian, controls the account and makes the investment choices until the child reaches their state's age of majority. The two common types are UTMA and UGMA accounts. The custodian has to use the money for the child's benefit, not their own. At the age of majority, the custodian hands over full control and the now-adult child can do what they want with the balance.
01Why it matters
Custodial accounts are one of the simplest ways to gift investments to a minor: anyone can contribute, and there is no special use restriction. They are also irrevocable: the giver cannot pull the money back if circumstances change. The age-of-majority handoff is the moment families often realize this for the first time.
02The math, step by step
A parent opens a custodial brokerage account for their 5-year-old and manages it for years. When the child reaches the age of majority in their state, the parent hands over full control and the now-adult child decides what happens next.
03What this is NOT
A custodial account is not the custodian's money: the gift is irrevocable and you cannot take it back. It is also not a retirement account, so there is no tax-deferral wrapper on top of the underlying investments.
04Receipts
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