Are Custodial accounts protected from creditors?
In the event of a bank failure or takeover, custodial accounts are FDIC insured. This means that if anything happens to Stash, our custodian Apex, or the wider banking system, your custodial account is safe from creditors.
A custodial account is a kind of irrevocable trust. Because it is established by one party in the name of another party, it is treated like a trust account. This agreement is considered irrevocable and cannot be altered.
Once created, the parent relinquishes ownership of the assets, which become the property of the minor once they reach the age of majority.
How is this account protected by the FDIC?
According to the FDIC, irrevocable trust accounts are generally insured for deposits up to $250,000, or more in some cases. This insurance is separate from other coverage provided for any other types of accounts held by the owner or beneficiary at the same bank.
That means that a custodial account is insured in addition to all other assets you or your child may hold. If you had $250,000 in a custodial account and $250,000 in a personal savings account, for example, FDIC insurance would cover the full amount of both accounts.
What about personal debt?
For creditors looking to collect on a debt owed by the custodian of the account, the account does not offer any special protection.
The account is under the name of the custodian until it is transferred to the beneficiary on the day they reach the age of majority.
As long as the account is under your name, it will be treated as if it belongs to you.
There have been cases where parents have attempted to hide funds from creditors using custodial accounts. Their efforts have proven futile because such accounts are not out of the reach of creditors.
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