Custodial Accounts... Page 2
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Advantages
- Custodial accounts are only transferrable to the child whose name and social security
are on the account. No one else can touch the money.
- If you make gifts to the account -- and you are not the custodian -- you'll be
able to remove those assets from your estate, thereby avoiding additional estate taxes
when you die.
- You can to pass assets directly to your children on a regular basis without incurring
any gift tax.
- Income (interest, dividends, etc.) from the account is taxed to the child at the kiddie
tax rate -- as long as it doesn't exceed a preset level.
Disadvantages
- You can't control how your child uses the money once they reach the legal age. Your son
or daughter has the legal right to blow the money on a sports car instead of four years of
college.
- Gifts to the account are irrevocable. There is nothing you can do to get your money back
-- you can't change your mind.
- Money in the custodial account can't be used for normal living expenses you're expected
to pay as a parent.
A child who has assets held in their name is less
likely to qualify for financial aid than one who doesn't.
Children Calculators:
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• How much will it cost to
raise a child?
• What's it worth to reduce
my spending?
• Should my spouse work too? |
