Custodial Accounts vs. Trusts

While custodial accounts are very similar to trusts, the point of a custodial account is to allow you to transfer property to minor beneficiaries without having to establish a trust.

They work in the same way in that they both place property under the control of a person who is not the beneficial owner. Like in a trust where the Trustee manages the assets, but for the benefit of the beneficiaries. In custodial accounts it is the Custodian that manages the property for the benefit of the minor.

It is important to note that property held in a custodial account is owned by the minor even though they cannot have control over it until later. Also, a gift is legally complete once it is transferred to the account, not when the account terminates. Therefore, you cannot take anything back once the transfer is complete.

On the whole, trusts do provide better protection and much more flexibility. Especially, if you plan on leaving a large sum of money, property, and other valuable assets. Custodial accounts are much better suited for smaller transfers.

You should consult with a professional Estate Planning Attorney when considering whether a trust or a custodial account is the right option for the size and value of your estate, as well as, the age of the beneficiary.

*This blog entry was not written by an Attorney and should not be constituted as professional legal advice.