Assets held in a child’s name can qualify for low tax rates but the money must be held in a custodial account. When the child comes of age–as early as age 18 in many states–he or she will be entitled to that money, so it will be out of your reach then. If your son or daughter wants to squander the money, instead of paying for college, there may not be much you can do.
To avoid this problem, you might act while you’re still custodian and spend the money on permissible expenses, which could include a computer for the student or private high school. You may want to check with a lawyer to see what a custodian is allowed to do, in your state.
Another option is to transfer those assets into a trust, where safeguards can be put in place, while you’re still in control of the custodial account.
