Articles Posted in Banking

Custodial accounts are created by adults as custodians for minor children. Both the custodian and the minor must be residents or resident aliens of the United States. The accounts are established under the Uniform Transfers to Minors Act (UTMA).

A custodial account is an account created with property gifted by an adult. It is a gift under the Internal Revenue Code and can be used for annual gift tax exclusions up to $14,000 per year per child to whom the gift is made.

The account is irrevocable and cannot be terminated by the adult.

Money, securities, U.S. savings bonds, life insurance, annuities, partnership interests, real property and tangible personal property can be transferred to the UTMA account.

The account assets can be used for the benefit of the minor prior to the minor reaching the age of majority. The custodian is the only individual who can access the account.

The identification number on the custodial account is the minor’s social security number. Any income earned will be reported to the IRS under the minor’s social security number and taxed to the minor.
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Effective January 1, 2010, Illinois enacted the Banking Convenience Account for Depositors Act which allows account owners to create joint accounts that allow non-owners to make deposits and withdrawals. The accounts do not have Payable On Death or Transfer on Death designations. The non-owners have no survivorship rights as there would be with a common joint tenancy account.

The accounts are useful where an elderly person has an adult child assist with banking, such as making deposits and paying bills, but where there is no intention to make the balance in the account a gift to the non-owner upon the death of the owner.

The banks are protected. Until the bank receives written notice of the death of the account owner, it has no liability for continuing to pay funds to the non-owner. Once the bank does receive written notice, unless there is a restraining order or injunction in place, the bank is discharged from liability by delivering the remaining funds in the account to the executor, administrator or other representative of the estate.
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