What is a "custodial account"?

Banks and trust companies offer a type of bank account known as a custodial account, which more and more people are discovering to be really useful for older parents. The details of the accounts vary from bank to bank, but the general idea is that the bank or trust company manages the account on behalf of your parent.

All of the usual automated debits and credits can be run through the account. The difference is that with a custodial account, the bank or trust company will also take care of othre financial transactions, such as getting your parent's tax return prepared, investing any overage in funds, managing investments, paying bills and notifying your parent when a financial instrument matures and needs to be reinvested.

This can be a really useful solution for a parent who does not handle money well or doesn't want to handle finances. Sometimes this is because of the onset of mild memory loss due to aging, but not always. It can also be useful for someone who has perfect mental capabilities but doesn't want to take care of these matters himself or herself.

For example, a custodial account might be used when a person is widowed, and the spouse who passed away was the one who had always handled the family's finances. The surviving spouse sometimes just doesn't feel comfortable taking over that job. In fact, he or she might find it stressful or even overwhelming to try to learn how to handle the finances, when he or she is already adjusting to the loss of a spouse.

This arrangement is a good idea where a parent needs or wants a bit of help but isn't ready or willing to give power of attorney to anyone just yet. It lets the parent maintain privacy and independence.