Custodial accounts have both benefits and drawbacks

March 25, 2011

Q: What are some of the pros and cons of establishing custodial accounts for children?

Q: What are some of the pros and cons of establishing custodial accounts for children?

A: The Uniform Transfers to Minors Act (UTMA) authorizes parents or other designated custodians to manage investments for the benefit of a minor child. No special legal forms or documents are required to establish an UTMA account, and anyone can make unlimited contributions to it.

Gifts to UTMA accounts reduce your estate value for federal estate tax purposes, thereby enabling significant income tax savings. That's because children usually have little income and have the benefit of their own standard deduction.

Send your money management questions to medec@advanstar.com
. Answers to our readers' questions were provided by Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF, founder of Physician Financial Services, Woodbury, New York.