Transferring a Custodial Account to the Beneficiary: With effective planning and preparation, the transition to the new owner can be seamless.

Key Takeaways

• Custodial accounts, such as UGMA and UTMA accounts, empower parents or guardians to manage and grow a child's financial assets effectively. These assets are irrevocably owned by the child and can be utilized for their needs as they mature.

• Custodians must transfer any remaining assets to the beneficiary upon reaching adulthood. Fidelity offers straightforward options for initiating this transfer, including phone, online, or by sending a direct check or wire.

• Regular financial discussions and education are crucial for helping children and young adults develop strong saving and spending habits. Fidelity provides robust resources and educational tools to support this important endeavor.

When children acquire money through earnings, gifts, or inheritance, custodial accounts offer a reliable mechanism for a custodian to manage these funds on behalf of the child.

What are custodial accounts?

Custodial accounts, established under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), offer a powerful and tax-advantageous way to manage and potentially grow a child's finances. These accounts enable parents or guardians to invest for their children, with the assets irrevocably belonging to the child.

Benefits of custodial accounts

As children mature, the funds in a custodial account can be strategically used for their benefit, such as covering educational expenses, extracurricular activities, a home down payment, or laying a strong foundation for their future. Upon reaching adulthood, typically between 18 and 25 years of age depending on the state, the custodian is required to transfer any remaining assets to the beneficiary.

It is essential to plan for the transfer at the appropriate age. At certain financial institutions, you will not be able to add new funds or purchase investments in the account once the child surpasses the state-mandated age and control has not been transferred.

Before transferring a custodial account

Regular financial discussions in the years leading up to the transfer can effectively prepare the beneficiary. While there is no definitive time to begin these conversations, starting early can foster excellent saving and spending habits.

For age-appropriate suggestions for younger children, refer to articles for further knowledge

Encouraging teenagers to start saving and learning about investing can be facilitated through a Youth Account if your brokerage offers it. Teens can begin investing independently at age 13, with guidance from a parent or guardian. Unlike a custodial account, where the custodian makes investment decisions for the minor, a Youth Account is a brokerage account owned by the teen, who makes all investment decisions.

How to transfer a custodial account to the owner

The transfer process must be initiated by the custodian. This process establishes a new brokerage account for the beneficiary to receive the account assets. A brokerage account is a taxable investment account that enables the purchase of stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities.

Three Methods to Transfer a Custodial Account to the New Owner

Each financial institution has its own procedures for account transfers. With most, there are several methods available.

1. Transfer Custodial Account Assets to Another Account at brokerage

A swift method to transfer a custodial account is by contacting your brokerage via phone. This process can be completed in just two steps.

• The beneficiary must open a new brokerage account.

• Once the new account number is obtained, the custodian can call to request the transfer. Assets can be transferred in-kind between the custodial account and the new brokerage account.

Tip: If the new account owner wishes for the custodian to continue managing investments, they can be added as an authorized user on the account. Despite the transfer of ownership, the custodian can remain involved. There are four levels of access: inquiry, limited, full trading authority, and power of attorney.

2. Complete a Change of Account Registration Online

Alternatively, the custodian can complete the change of account registration form. This process requires the custodian to provide owner information and an e-signature from the beneficiary.

The new account will be established, and assets transferred within five to seven business days after form completion.

3. Send a Check or Wire Directly to the Beneficiary

Another option is to issue a check or wire from the custodial account, payable to the beneficiary. This can be done online or by contacting your brokerage for assistance. Note that selling investments to generate cash may result in capital gains or losses for the beneficiary, as they own the assets.

For more information on taxes and investing, research informative articles on the topic.

Tools and Resources for New Investors

Most brokerages offer a comprehensive library of articles, videos, and tools to support new investors.

Preparing the Next Generation for Financial Success

Watching young individuals assume control of their financial futures can be bittersweet. Providing continuous support, education, and guidance is essential for helping them make informed financial decisions. Black Investors Coalition is committed to assisting with numerous collaborative opportunities.

Best Regards,

Stock Market Charlie a.k.a The Hound of 317