Withdrawing money from Custodial acct- need financial advice

amother

Wed, Apr 17 2013, 8:55 am

Years ago I made investments as custodial accounts for each of my children. I pay their tuition in full, etc and now I wanted to close out one account. The company sent me a check in my name, Custodian for my child's name. I need the money now.

Banker told me I can open a Custodial account and make withdrawals. Is that a good way to go?

Will I have problems later on? I NEVER intended on giving my kids the money straight out, in one lump some. I pay all their expenses anyhow.

Whats the best way to do this? My daughter has no idea about this account. This investment was made this way at the advice of a financial planner many years ago.

vicki

Wed, Apr 17 2013, 9:06 am

What did you gain by opening this account? Was the money tax free or tax deferred? Any tax implications? I have standard custodial accounts for my older kids with no tax implications and I could withdraw as desired. But my intentions are to teach the kids about savings and for them to use it one day.

amother

Wed, Apr 17 2013, 9:12 am

vicki wrote:

OP here. I have a will for that purpose (providing for my kids). This was stupid advice by a financial planner. These investments are doing poorly.

Dolly Welsh

Thu, Apr 18 2013, 3:27 pm

I am no financial counselor or lawyer, but you should have a manilla envelope that is a file about this account. Write out a full description of what you want the money for, date your note, and put it in the file. Then when you use the money, make a note about what you did with it, and why. Then, keep all receipts for these expenses in this file. That way, if anybody ever questions what you did with the money, you can support.

This money must be used "for the benefit of the child". You can't just use the money for any old thing.

The terms of the account might be that the money becomes the child's property when he/she turns 18, but I don't know. You could ask the bank that. Or not.

Nobody is going to bother you about this unless there is a problem or dispute. But you should know what the rules are and follow them.

I don't think the child has to know this money exists until he/she turns 18, but I am not sure.

It can certainly be used for school tuition, the child's clothes, the child's camp, study books, tutoring, stuff like that.

If you wish you hadn't done this, spend the account down on legitimate expenses for the child's benefit until it's empty or almost empty.

Keep the file where the kid won't find it.

amother

Thu, Apr 18 2013, 3:37 pm

vicki wrote:

You couldn't deposit the check as it was into an account in just your name? You were told you HAD to open a custodial account with both your names on it?

Thats what the manager at Sovereign said. But he did say I can make withdrawals as I see fit. Over the last 10-15 years ive paid many times that amount on tuitions etc. but in the future Im not sure. I think Ill do the envelope idea and put in a record of expenses of the last 10 years and I think im entitled to reimbure myself now.

Dolly Welsh

Thu, Apr 18 2013, 4:04 pm

Careful about re-imbursing. Just spend it on stuff going forward, is just my humble opinion. You will surely have new expenses. It is even better if the expenses have a not-necessary quality, extras; special help, special books or equipment, tutoring, specialized medical care or therapy. But I am no expert.

Last edited by Dolly Welsh on Thu, Apr 18 2013, 4:06 pm; edited 1 time in total

amother

Thu, Apr 18 2013, 4:05 pm

amother wrote:

vicki wrote:

You couldn't deposit the check as it was into an account in just your name? You were told you HAD to open a custodial account with both your names on it?

I don't see that you are entitled to reimburse yourself for past expenses. You have a support obligation for your own child. Current expenses like Dolly Walsh says can be paid as they are legitimate uses of the funds from the UGMA account.

How much money are you talking about? It sounds like you just want to take title back to money that you gave away. You can have your child sign the money back over to you if the child is 18. Is this child an adult?

Dolly Welsh

Thu, Apr 18 2013, 4:07 pm

Once he's an adult it's all moot; he is just giving mama a gift.

I think these accounts are used to keep their interest income from being taxed at the parents' rate. Until age 14. But I don't know. The bank may know.