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Custodial account?
Old 03-11-2008, 11:49 AM   #1
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Custodial account?

I have a wealthy relative (age 85+) who has recently begun gifting money to a number of her heirs. This includes my son, who is an infant. For 2007 we put the full gift into a 529 plan for college.

For the 2008 gift we are planning on putting the majority of the gift into a 529 and the remainder into a custodial account. My understanding of custodial accounts is that monies in that account can be administered by the custodian (me), but should fall outside of a parent's 'support obligation'. My interpretation of this is that the funds couldn't be used to buy diapers or food, for example, but could be used for 'extras' (music lessons, etc).

Because I currently have a brokerage account with WellsFargo, they would set up a custodial account and waive all fees. However, I was told that they cannot set up custodial accounts as checking accounts for minors <13 years of age (they can be set up as savings or brokerage accounts). I believe this is a company policy, as opposed to a federal requirement.

What I'd ideally like to do is open a brokerage account either with a linked money market (w/ checks) or a linked checking account. That way I could invest a portion of the funds and use a portion to pay for the 'extras'.

Has anybody done this? Thoughts?


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Old 03-11-2008, 12:53 PM   #2
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My kids have custodial accounts (UTMAs at Vanguard invested in index funds, specifically).

If you're just looking at the disbursment side, the way I understand it is that you would pay for the music lessons out of your own pocket with a check or whatever -- a check would probably be best for recordkeeping purposes -- then withdraw that same amount from the custodial account and deposit that into your checking account. When I do this I make sure to notate on the withdrawal paperwork what the proceeds were used for, again for recordkeeping purposes.


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Old 03-11-2008, 01:09 PM   #3
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Originally Posted by bots2019 View Post
What I'd ideally like to do is open a brokerage account either with a linked money market (w/ checks) or a linked checking account. That way I could invest a portion of the funds and use a portion to pay for the 'extras'.
Has anybody done this? Thoughts?
Maybe a credit union would set up a no-fee checking account titled "Parent FBO Kid's UTMA".

You could always have the brokerage send you a check to deposit in whatever account you want and then retain receipts or other documentation to show that you spent the money for the kid's benefit. You could set up a separate checking account with just about any bank or credit union and use that account only for gifts & kid-related expenses.

My impression is that the IRS has far more profitable criminals to pursue than parents allegedly abusing their UTMA responsibilities. Whatever you do with good intentions is probably deemed "good enough" or at worst "Ooops".

Navy Federal Credit Union (with which spouse and I have accounts) let our kid set up a checking account on her ninth birthday. We tied that to her UTMA with no problem. We also had no trouble setting up a T. Rowe Price minor's custodial Roth IRA when she turned 14 and picked up a part-time job.

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