With custodial investment, as with so many things, 18 is the magic age at which you can and sell stocks in your name and on your own behalf. Of course before 18, while you may have the money you would not be able to operate your custodial bank account without the backing of a ‘responsible adult’. You are officially a minor, or one who is not of majority age.
This does not mean that you cannot buy stocks. Just that you are not old enough to buy stocks. A custodial bank account is one with a brokerage firm that will allow trading in stocks on your behalf. It is in your name but it must also have the signature of a responsible adult every time a transaction, especially a custodial account withdrawal is carried out.
A custodial investment account is a demand deposit account with a service provider. The custodial bank or company takes funds deposited, interest accrued or escrow (third party) funds. There are 3 types of custodial accounts. 1)Principal and Interest (P&I) Custodial Account, 2) Escrow (T&I) Custodial Account, and 3) Buydown Custodial Account.
Custodial investment accounts are for people who want to give money to a minor for them to use when they come of age. There are no restrictions about the age of the minor who gets the custodial account nor on the spending of the money from the custodial account once the person is no longer a minor. Really the only stipulation is that the money is for the benefit of the young person, and the account must be passed to the young person when they reach 18 or any age up to 25. It varies in this stipulation from state to state.
There are two reasons for setting up a custodial bank account for your favored minor. The first is as a gift and what a gift it is. A gift of cash at the time of the custodial account withdrawal of course but also a lesson in investment, compound interest and finance management.
The second reason for a custodial bank account is to cut back on the estate taxes you may be liable for. Estate taxes are those that your heirs pay after your death. By putting some of your assets into custodial bank accounts they are left outside of the estate tax net.