Assets held in custodial accounts under the Uniform Gifts To Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) must pass to the child’s control when he or she becomes an adult. Depending on state law, that might occur as early as age 18.
Therefore, you probably will want to keep only moderate amounts in these custodial accounts. Youngsters who come into large amounts of money might spend it foolishly and even drop out of school.
Moreover, assets held in custodial accounts will reduce students’ eligibility for financial aid. If those assets are kept in the parent’s name, more grants or favorable loans may be awarded.
Finally, naming a parent as custodian can be an error. If a parent-custodian dies while the account is still effective, the account’s assets probably will go back into that person’s taxable estate, possibly increasing an estate tax bill. If you face possible estate tax liability, someone besides a parent should be the custodian.