Can Both Parents Be on a Child's Custodial Account?
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If you are a parent looking to save for your child’s future, a custodial account is a smart and flexible tool. But a common question pops up: Can both parents be listed on the same account? The short answer is yes, and in most cases, financial institutions allow it. Having both parents as custodians provides shared responsibility and ensures smoother management.
But beyond that, there is a lot more to understand about how custodial accounts work, the types available, and what you are signing up for. Here is what every parent needs to know.
What Is a Custodial Account?
A custodial account is a savings or investment account created for the benefit of a minor. The account is legally owned by the child, but managed by a designated adult, typically a parent, until the child reaches adulthood (either 18 or 21, depending on the state). The custodian controls the account, including managing deposits, investments and withdrawals. But once the child attains adulthood, full control is transferred.
Unlike a joint bank account, where both account holders share ownership, a custodial account is solely the child’s property. The adult custodian manages it on the child’s behalf.
UGMA vs. UTMA
When setting up a custodial account, you will choose between two frameworks: the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Both allow parents or guardians to transfer assets to a minor without needing a trust or court involvement, but they differ in what they can hold.
UGMA accounts are more limited and typically include financial assets like cash, stocks, or bonds. UTMA accounts can consist of those plus additional property types, including real estate. Another key difference lies in taxation: income generated by UGMA assets is taxed to the child, while UTMA rules vary and may offer different tax advantages based on the state and the types of assets held.
Both Parents Can Be Custodians
While traditionally one parent acts as the custodian, most financial institutions allow both parents to be listed. This joint custodianship can be helpful for several reasons. First, it enables both parents to stay involved in decision-making. Second, it ensures continuity. If the designated custodian passes away or becomes incapacitated, the other parent can step in without court involvement.
Keep in mind that despite both parents being listed, only one person makes the final calls on investments or withdrawals.
Advantages Worth Considering
Custodial accounts are an excellent way to start building a reserve for your child. They are relatively simple to open and do not require much paperwork. Most banks, credit unions and investment firms offer them, and there is no minimum deposit in many cases.
Another plus is that the money does not have to be earmarked for college or education. Once the child reaches the age of majority, they can use the funds for anything — school, a car or a business. This flexibility is one of the account’s biggest selling points.
In addition, because the assets legally belong to the child, they may fall into a lower tax bracket, which may reduce the overall tax liability on earnings.
But There Are Some Downsides
The flexibility mentioned earlier can work like a double-edged sword. Parents lose control once the child reaches adulthood. That means if you were hoping the money would go toward college, but your child decides to use it for something else, there is not much you can do.
Also, any income generated from the account may trigger a “kiddie tax,” wherein some unearned income is taxed at the parent’s rate.
Lastly, once you transfer money into a custodial account, it is irrevocable. That means you cannot take it back, even if circumstances change.
The Bottom Line
Custodial accounts offer a powerful way for parents to invest in their child's future, both financially and educationally. They also provide a unique opportunity to teach kids about money early on. And yes, both parents can be listed as custodians to ensure continuity and collaboration.
Before you open one, talk to your bank or a financial advisor to figure out whether a UGMA or UTMA account makes more sense for your goals. The earlier you start, the more you can save and the more time you will have to teach your child the value of financial planning.