Ask Kim
Only Children can Benefit From Custodial Accounts
Can I close the custodial accounts for my children and use the money for the down payment on a house?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
July 2, 2004
Currently I am looking for a house in a better school district for my two kids. Since the house price is high, we may not have enough for a 20% down payment. I have custodial accounts for my kids. Can I close the custodial accounts and use the money for the down payment?
Good try, but no. You can use custodial account money for a wide variety of things -- pretty much anything to benefit the child. But the purchase needs to be for the child's benefit alone. You can't buy a house that your whole family will live in (and which would be titled in your name), even if you argue that moving to a better school district would benefit your kids. The rest of the family is getting too much out of the deal.
"That one seems to be outside the scope of the custodian's authority," says John McCabe, legislative director for the National Conference of Commissioners on Uniform State Laws (the rules governing custodial accounts are uniform state laws). "The child gets the benefit out of a lot of things in which the benefits are shared by others more greatly than the child, and generally those are not things you can use the custodial accounts for."
It is your child's money, after all. You can't, for example, use it to pay for your whole family's vacation just because your kid is there, too. But you can use it pay for your child's share of the vacation or to send him to camp.
The rules regarding what you can use the money for are quite broad and aren't meant to be complicated, says McCabe. You can use it for educational expenses, but you can also use it to buy almost anything else for the child -- a computer, TV, car (as long as it's his own car and not the whole family's), transportation to college or vacation, video games, piano lessons, a guitar or a slew of other things.
And keep in mind that the child will have total control over how to spend any money remaining in the account after he reaches the age of majority, which is 21 in most states but 18 in a few.