What Is a Custodial Account?
Under Florida law, minors (children under the age of 18) are generally not considered "competent parties." Because of this, a 12-year-old cannot legally sign a contract, open a brokerage account, or hold the deed to a piece of real estate. If a grandparent wants to leave a $500,000 apartment condo to their young grandson, they cannot simply name him on the deed.
To solve this, the law allows for the creation of a custodial account under the Florida Uniform Transfers to Minors Act (FUTMA). An adult (the custodian) is appointed to manage the asset. The child is the true, beneficial owner of the real estate or cash, but the custodian has the exclusive legal authority to manage, sell, or invest the asset on the child's behalf.
The Fiduciary Duty of the Custodian
The custodian is bound by a strict fiduciary duty. They cannot use the money in the custodial account to buy themselves a sports car or pay their own personal mortgage. The assets must be used strictly for the benefit of the minor (e.g., paying for the child's private school tuition or summer camps). If a custodian steals or mismanages the funds, they can be sued for breach of fiduciary duty when the child grows up.
The Danger of FUTMA Accounts
In Florida, a massive danger of using a standard FUTMA custodial account (rather than a formal living trust) is that the account legally terminates when the child reaches the age of 21 (or sometimes 18).
On the child's 21st birthday, the custodian's power vanishes instantly. The 21-year-old gains absolute, unrestricted control over the $500,000 condo or the cash. Because many 21-year-olds lack financial maturity, estate planning attorneys usually prefer to use a formal trust, which can withhold the money until the child reaches age 30 or 35.
Related Terms
- Living Trust — The safer, more flexible alternative to a simple custodial account
- Beneficiary — The minor child who owns the assets in the account
- Deed — Cannot be signed directly by a minor, necessitating a custodian
Barnes Walker Estate Planning
Barnes Walker's estate planning attorneys assist Florida families in structuring secure multi-generational wealth transfers, frequently advising clients to bypass rigid FUTMA custodial accounts in favor of highly customizable spendthrift trusts that protect young beneficiaries from financial predators. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC