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Many people have heard about trust funds and custodial accounts. But what is the definition of a custodial account? Why are they an option that parents or grandparents may want to consider for their own children?

In its simplest terms, a custodial account is any account which is created for the benefit of a minor. This means you can make investments on your child’s behalf. You can also transfer property you already own to that child. You can open accounts (whether at a bank, brokerage firm, insurance company, or mutual fund company) in your child’s name and have it managed for them.

You choose who will act as the custodian of the account. This could be you or another adult you feel is financially savvy and who is trustworthy to manage the account. It could also be a financial institution.

You choose when the child reaches the age of majority where they are able to access the funds in the custodial account. This age is usually set at either 18, 21, or 25 years of age. Factors that determine this are the state in which you live and which type of account chosen. “Majority” is the age at which the child has the legal right to control the account and use the assets as they see fit.

There is one thing to consider before choosing this option as a means to reduce your own tax liability. If you have these assets in the child’s name, it may limit the amount of financial aid your child qualifies for when they decide to go to college.

There are two major tax rulings concerning custodial accounts: Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). Under these rulings, earnings or interest up to $800 are tax-free for children under the age of 14. Amounts over $800 but less than $1,600 are taxed at the child’s rate. Anything over $1,600 is taxed at the parent’s tax rate. Once the child turns 14, earnings and interest will be taxed at the child’s rate, which is considerably less than what a parent would pay.

In some cases the custodial account may be set up to support a minor child under the UTMA. This means the custodian may use funds from the custodial account to pay for things benefiting the child. One such case may be a grandparent setting up a custodial account for a special needs child’s daily living as long as a parent or guardian doesn’t avoid using their own funds to support the child.

You’ll want to talk to a professional financial counselor or lawyer before setting up a custodial account. This will ensure you understand the definition of a custodial account, what benefits it has, and any legal obligations regarding this type of account. They will also be able to advise you on the particulars for setting up the account, the best majority age, and any limitations to the account.

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Unless you’re born into an extremely wealthy family, you’ll probably end up having to borrow money. Whether for a vehicle, a home, or post-secondary education, you can expect a financial institution to be in your future. Here are ten tips for borrowing wisely.

1. Borrow as little money as possible. If you need a new vehicle, you don’t have to try to purchase a brand new Hummer 3 if you can manage with a smaller vehicle. Calculate how much you make and decide how much you can easily pay back; then look for a vehicle that will give you payments in that range.

2. Understand the terms of a loan. The principal is the amount borrowed and on which you will pay interest. Interest is basically the rent you pay for using the funds received.

3. Consider how much credit you already have. If you’re going to need to replace something in the near future, do whatever you can to pay off one of your other creditors first. This will keep your debt-to-income ratio lower and possibly keep your credit rating from being unaffected.

4. Be sure to repay loans based on the repayment schedule you receive. Sending payments late will adversely affect your credit rating and possibly your ability to receive lending in the future. If you think your ability to repay a loan is at risk, call your lender immediately.

5. Shop around to see which financial institutions have the best interest rate and repayment terms. Depending upon the type of loan you need, you may have more options than you believed.

6. Regularly check your credit score and history. This will enable you to find errors and give you an opportunity to get those items repaired. Particularly look for accounts you have not opened or obvious errors.

7. Understand the terms of the agreement prior to signing final documentation for a loan. Are there questions at all about the terms? Ask the loan officer to explain things in a way you can understand.

8. Avoid the “borrowing from Peter to pay Paul” mentality. If you’re having financial problems, be sure to let your creditors know. They may be willing to lower your interest rate, your monthly payment, or defer a payment until you can get caught up.

9. Keep an eye on revolving credit. This type of credit doesn’t lend itself to remaining in a budget because you can pay off part of the balance on the account and then start charging up to your credit limit again. Revolving credit is often found on department store credit and may have higher interest rates associated with them.

10. Create a budget. A budget is like having a roadmap that shows how much income your family earns, what your household expenditures are, and how much you owe to creditors. Your goal is to handle your finances in a way that allows you to pay all of your monthly bills, provide necessities for your family, and still have some money left over to save for the future.

Use these ten tips for borrowing wisely so you can avoid financial problems. By following even a few of these tips, you may find your family on a firmer financial footing in the future.

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Finding a financial institution that is a good fit for you and your family is extremely important knowing the right bank and bank account can have a large effect on your financial future.

The right banking relationship can have a big effect on your financial future. Using these tips on how to choose the right bank and bank account, you may find the help you need to compare banks and accounts to make the best choice for you.

Your money – It’s important to know what you’ll be using the bank account for. Is it merely for depositing your paychecks and paying bills or will you use your account to save? Do you want your money to grow or will you use it before it has a chance to earn interest? Knowing how you’ll use the bank is important before you start looking at banks and accounts.

Would you prefer paying bills online? Does the local bank offer this service if you hate writing out checks, licking envelopes, and buying postage? Most banks do offer this service but some of them charge for it. Look for the fees associated with each feature you want.

Your banking style – What is your banking style? Do you prefer to go into a local branch where you get to know your bankers or are you fine with the anonymity of banking online? Does your work schedule preclude you from making it to a brick and mortar building? If so, you may want to look into online banking services for local banks.

What you find important – Free checking accounts are offered as a way to get people into a bank and get them to start a new account. While these may be a good choice for those just starting out, they may not be the best choice for you. Look at the fees associated with each bank’s free account. Are they truly free or will you have to pay each month for the features the bank offers?

Your friends and family – Ask friends, family, and co-workers who they do their banking with and how they feel about it. You may want to also check with the Better Business Bureau in your area to see if there are any complaints against the bank you’re considering. Keep in mind you’re most likely to find negative comments rather than positive ones.

Your financial future – Will you be making a large purchase in the near future? Will having a local bank make the process of applying for a loan easier? Will having a history with a local bank help you obtain the funding you’ll need? These are some things you’ll want to think about when considering local and online banks.

Here are some other things to consider:

* Location – Do you need a bank close to your work, school, or home?

* Branches – Is it important that the bank you choose have multiple branches across your city, state, or across the country?

* Online – Do they have a website where you can learn about them, their services, and their fees without taking time out of your day?

* Comparison – Don’t forget to compare the types of accounts they offer, the fees for the services, and what type of interest rate they’re charging should you need to apply for a loan.

Read through these tips on how to choose the right bank and bank account before starting the process. The time you take when looking for a bank can have a large effect on your financial future, as well as help you avoid paying unnecessary fees.

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Are you one of those people watching money come and go through your hands?

You know saving is important but you haven’t been able to get into the saving groove yet. Here are five ideas to trick yourself to save instead of spending what you get.

Financial experts recommend having a minimum of three to six months income saved for unplanned emergencies or possible layoffs. Saving that much money isn’t going to happen overnight, and if you’re used to spending what you get, it may be difficult. You can overcome your spending habits and start saving by following a few simple steps.

1. Continue to make “payments” after an item has been paid off. This may not make sense, but if you’re not used to having that money available to you, you won’t miss it. Instead of paying for an item that now belongs to you, have that money withdrawn from your paycheck and direct deposited into a savings account, money market account, or adjust your 401K withholdings.

2. Use cash as much as possible. Some financial experts call this the “envelope system.” Cash your paycheck. Put some money into savings and some into checking to pay for bills online. Split the remaining cash into envelopes for each category – groceries, clothing, entertainment, or gasoline/transportation. You’ll be able to see how quickly you’re spending it, and when it’s gone, it’s gone.

3. Give up a luxury such as gourmet coffee or eating out for lunch. Spending $4 a day for coffee means you’re spending an extra $20 a week, around $100 a month. What could you do with an extra $100 each month? You could start that emergency fund experts recommend. You could also begin putting money aside for a house, new car, or family vacation.

4. Avoid paying late fees by paying bills automatically. Many banks offer a bill paying service which allows payments to be taken directly from your account on a specific date each month. Even if the bank charges a monthly fee for this service, it will undoubtedly be less than paying late fees for more than one creditor.

5. Put annual raises, year-end bonuses, or income tax refunds directly into savings rather than trying to decide how to spend them. If you keep the same standard of living rather than increase how much you spend to match your new income or bonus, you’ll be able to set aside a good amount of money without missing it or feeling neglected.

These five ideas to trick yourself to save instead of spending are by means the only ones. In fact, if you think about it, you could probably come up with any number of other ideas to help your family save money. Saving money isn’t difficult to do, but spending money can be a hard habit to break. Why not try putting some of these ideas to use and watch your savings grow?

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You may have heard the saying “money doesn’t grow on trees.” You may have even told your children the same thing. Here are ten ways you may want to try to teach your kids about money.

When you decide to teach your children about money is something you and your partner will want to discuss. They will obviously learn something about money at school, but you may want them to learn some specific things:

* How to earn money by having a job
* How to save money by setting aside money for larger purchases
* How to budget by limiting how much is spent each month to ensure needs are met prior to purchasing things they want

Don’t be afraid to talk about your family’s finances. Talk about what you do for a job and why you work. Explain to them that you have monthly bills that must be paid. Tell them about how banks are used to hold money and disperse it to pay people.

1. If you don’t currently have a budget, take the opportunity to do that as a family. This allows everyone to understand what money comes in and what goes out each month.

2. Show them your paycheck and how much is taken out for withholdings. Explain what each item is and why it’s important.

3. Let them watch you fill out the deposit ticket. Show them how you can keep some money out as cash and the rest goes into your checking account to be used.

4. Pay your bills with them watching. Explain why you choose to pay bills according to due date and what happens if you’re late in paying them.

5. Tell them how long you have to work to pay for things. If your telephone bill is $50 and you make $10 an hour, it would take you five hours to pay that bill. This may help them understand the value of money a little better.

6. Some families use credit cards. Tell about the potential dangers of using them; that it’s easy to buy things you really can’t afford and that you will end up paying more for those items in the long run due to interest.

7. Consider giving them an allowance so they understand how to earn, how to save, and how to comparison shop to get the best deals. Real life experiences – whether positive or negative – may have more of an effect on your child’s learning than what you say.

8. Discuss how having money comes with responsibility. While it would be great to be able spend everything they have, that’s not a good idea. Teach them to save first, be charitable, and then spend money responsibly.

9. Allow your children to make mistakes with their allowance. If they spend everything in one day, it will help them understand the concept of budgeting when they want something later in the week. Now would be a good time to ask them to work extra to get extra money to pay for something.

10. To teach them to budget, have them write down what they “want” and then prioritize the list. Explain how to save up for larger items, like an mp3 player, by setting aside a little bit out of each week’s allowance and still have some to spend each week.

These ten ways to teach your kids about money are by no means all available. Think about your family and its needs. Then choose one of these methods or another that will best meet your goal of teaching your children about money.

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As a parent, you know your children are not shy about asking for money. Some families give their children money when they ask, others give their children allowances. If you don’t currently give your children one, here are ten things to know about allowances.

Pros for giving your child an allowance:

* You may want to teach your children how to handle money; the earlier you start the better. By beginning to teach children about money at an early age, they’ll be more teachable and less likely to question your teaching.

* Having their own money will teach children to be responsible with their money. If they’re not, they face the unpopular consequences if they spend too much or lose it.

* Parents can breathe a sigh of relief because children won’t bother them for money if they have their own.

Cons of giving your child an allowance:

* Your children may think they can buy whatever they want because the money is theirs. This may mean they buy things their parents don’t approve of, which could result in stress parents may not want.

* Your children will probably complain that their allowance isn’t enough and ask you to raise it.

1. Why give an allowance? Having an allowance can be effective for teaching your children about money.

2. What can it teach? Allowances given to pre-teens and teens can be used to help finance their college career if they choose to go. By giving them an allowance, you give them the opportunity to open a saving account and checking account, both of which will be important when they leave home.

3. When to give it? A good time to start giving an allowance is when your children begin learning about money in school. Remember, if they can’t count it, they won’t know how much items cost and how much to use to pay for them.

4. How will it be used? You may not expect them to pay for school lunches, but you do want them to have the benefit of actually paying for some items with their own money.

5. What about saving? Explain that they will be expected to save a portion of their allowance. This teaches them the importance of saving, and expecting them to put something in savings first will help them learn this.

6. Will it be tied to chores? You will want to choose between linking your child’s allowance with doing household chores. That decision, obviously, is one you’ll want to make as a family.

7. How much do you give? You’ll want to consider your family’s financial situation, how much you can afford to give, and what your children generally ask you for money for. Some reports say the average allowance for 6-8 year olds is around $5 a week, $7 for children 9-11, and $15 for 12-17 year olds.

8. How often do you give it? Depending on how often you’re paid, you may not be able to give a weekly allowance. Also, as children get older, you may want to give them an allowance on a monthly basis so they learn to budget their money.

9. What else can they learn? When you give your child an allowance, you’re teaching them about spending wisely. It’s much easier for them to learn about losing $5 now rather than $500 when they’re older. An allowance gives your child a chance to make mistakes now when the stakes aren’t so serious.

10. What about docking their allowance? There may come a time when your child does something that makes you want to keep their allowance to teach them a lesson. If you choose to do this, don’t overuse this technique. It may cause resentment in your children.

Allowances and whether to give them is something each family will want to decide on their own. These ten things to know about allowances are by no means complete, but some things you may want to consider when deciding if they are right for your family.

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Parents and grandparents want the best for the children in their lives. With this in mind, some of them establish children’s trust funds – often days after a child is born. You may think wealthy families are the only ones who can establish children’s trust funds, but that’s simply not true.

What are children’s trust funds?

Children’s trust funds are similar to long-term savings accounts set up by parents or grandparents for the benefit of a child. It is a legal entity whereby one party, normally the parent or grandparent, sets aside a certain amount of money or property for the benefit of a minor child.

The property (money, stocks, bonds, or physical property) is held in trust by a trustee. The trustee is the person who looks after the property for the benefit of the child. This person may also be the grantor (the person who gave the money to the trust), but does not have to be.

There are two basic benefits of setting up a trust for a child:

1. The child is too young to manage the property. By setting up a trust for the property, the assets are protected for the beneficiary. The trustee will protect the assets until the child has reached the age set forth in the trust. Often children’s trust fund will set an age of 18 to 21 as the age at which a child may access the account.

2. The person setting up the trust is looking for tax savings. Income, estate, and gift tax advantages are common when establishing a trust for a child or grandchild. To understand the tax advantages of establishing a trust for your loved one, contact a professional tax advisor or financial consultant.

Once a children’s trust fund is established, the funds belong to the child. The person setting up the trust cannot reclaim the fund. Depending upon how the trust is set up, the child may be able to access some of the income or principal from the trust. Normally, however, trusts are set up to limit a minor’s access to the trust without getting approval from the trustee.

According to the Internal Revenue Service (IRS), there are two types of trust funds they will acknowledge. The first is the 2503 which allows the use of the funds until the child reaches 21, at which point the money is disbursed and the child may choose to reinvest or spend as they see fit. The second is the 2503b which distributes money to the child each year. If the child is too young, the money may be set aside in an account until the child is old enough to be given the money.

Choosing to establish a children’s trust fund is a serious matter. You’ll want to think about who should be the trustee, what requirements are going to be set in place, when or if the child will be able to access the funds while a minor, and more. To better understand children’s trust funds, speak with a lawyer and financial consultant. They will be able to give you the best advice for establishing the trust for your child or grandchild

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Economic circumstances can change rapidly for families and individuals. To help prepare for this reality, you can begin teaching children about money and financial responsibility while they’re young.

You may think your children are too young to learn about money, but unless they’re preschoolers or younger, this isn’t the case. In fact, the earlier you can start teaching children about money, the better off they will be because they’ll have practical knowledge and can learn to handle money wisely now.

The following seven benefits of opening a traditional bank account for children may encourage you to start the process.

1. Teaches them about money – Opening a traditional bank account will allow children to learn basic accounting principles. Let them be responsible for keeping their own account register. This may also teach them that everything costs something – in money and in time.

2. Prepares them for the future – Giving children a weekly allowance will prepare them for being paid as an adult and is a tangible way to teach them about money management. Teach them how long they’d have to “work” to purchase an item; those $100 shoes they want would cost 10 hours of labor to pay for if they make $10 per hour. Ask them if the shoes are truly worth that much time and effort.

3. Teaches them about saving – Having your children put money aside from their allowance teaches them to save. This teaches responsibility with money, budgeting by saving for something they want, and patience to wait until they have all of the money to buy that item.

4. Teens can learn to do their own banking – This is especially important if your teen does odd jobs to earn money or is working a part-time job. Having their own bank account enables them to keep track of their money and will teach them to be responsible and put money aside rather than spending it all.

5. Teaches them to save for the future – If your child is interested in going to college, having a bank account gives them a place to put money aside. Having a savings account is also a good option if they want to purchase a car. By having the account now, it will teach them to save for big ticket items they’ll want or need.

6. Savings accounts for minors are tax free – Start the account in your child’s name and with their social security number and you won’t be responsible for taxes on any interest the account earns. If your children receive cash gifts from family or friends, they can add to the account at any time. Of course, if your children are minors, an adult will have to be on the account as well.

7. Allows them to see where family money is spent – Setting up a traditional bank account for your child will enable them to see the process of earning an income and can teach them how you choose to spend that income. You may even want to consider getting your children’s input when you have discretionary funds.

One of your goals as a parent may be to teach your children to be financially responsible. Helping them open a bank account is a great start to teaching them about money and how to use it wisely.

Is your family struggling financially? In these economic times, the number of families in financial difficulty – if not crisis – is growing. Why discuss it with your immediate family?

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It is so important for your family to know the extent and nature of your finances. Although you may prefer to keep such matters private, your family will struggle in the event of your death or illness when your assets will need to be managed by someone besides you. And frank discussions about money are how children learn about financial management. For a family to function harmoniously and efficiently, and for kids to learn how to manage their own personal finances, everyone needs to be in the know. Here are some reasons to talk about your finances with those closest to you.

1. Break the Silence, Ease the Burden

Open discussion about the family’s finances eases some of the stress on the main financial provider in the family. And your spouse and children may have ideas and resources you might not have known about or considered. The family may get together and decide to have a yard sale, or the children may be willing to take on neighborhood jobs to help out. Maybe your spouse has an idea for a home-based business or other form of extra income. You don’t have to carry the family’s entire economic situation by yourself. Soliciting the support of your loved ones can take some of the pressure off.

2. Honesty Is Still the Best Policy

Your family will respect your willingness to be honest with them and trust them with financial information. Family members appreciate being included and involved in decisions that affect them, and usually have much to contribute.

3. Bridge the Generation Gap

Do you sometimes wonder what your dad is thinking when he says no to some expenditures? Do you get frustrated with your teen’s inability to understand the importance of saving and avoiding debt? Airing these frustrations and misunderstandings in frank family discussions is an excellent way to bridge the financial gap that exists between generations.

4. Make a Family Budget

Including the whole family in formulating a budget is a good way to get everyone involved and knowledgeable about the family’s financial state. On a practical note, it is essential to get a handle on the actual numbers involved in your family’s finances.

Making a budget forces everyone to work within a limited number of dollars, and can actually ignite creativity. If you can’t just buy it, why not learn to make it? Or come up with an alternative? An example of this is an entertainment budget. If your family is used to spending $100 a week on eating out and entertainment and you have to cut back to $50, let your kids come up with interesting alternatives such as a family board game night or cooking meals together.

Your children will remember what they learn when they come alongside their parents to help with the finances. After all, how your family manages its money affects every family member.

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Parents hope for their children’s lives to be better than their own. They want to ensure their children have opportunities they may not have had. One way parents can help prepare for their children’s future is by opening a children’s savings account (CSA). But what are children’s savings accounts and how can they benefit your child?

One benefit is to help your child’s savings for Education. Upromise was founded with a single mission in mind — to help families achieve the goal of a college education for the children they love. Upromise provides the programs, products, and information parents need to help them reach their college-savings goals and it’s free to sign up.  I personally use this program for my son’s future education and it is awesome.

College educations cost anywhere from $30,000 and more for a Bachelor of Arts degree depending upon the course taken. With expenditures this high, beginning to save as soon as possible is a wise financial move. In the past, the Education Individual Retirement Account (Educational IRA) was limited to having $500 added to the account each year. When the accounts were renamed in 2001 to the Coverdell Education Savings Account, the contribution limit was raised to $2,000 per year.

Any parent, grandparent, or other adult can set up the Coverdell Education Savings Account and designate a child seventeen or younger as the beneficiary. Contributions are added each year. These contributions are not tax-deductible; however, as long as withdrawals are made to pay eligible school charges (tuition, books, etc.) they can be withdrawn without being taxed.

What are some of the other benefits of starting a children’s savings account for a child you know? Here are a few of them:

* You can add money to the CSA and receive credit for doing so up to the date you file income taxes in April.

* Instead of having a cut off of the child’s eighteenth birthday, contributions for children with special needs can be made past their eighteenth birthday.

* Any adult can add money to a child’s account as long as the total contributions for the year do not exceed $2,000. If money over $2,000 is placed into the account, there is a six percent excess contribution tax charged even if the funds come from different people.

* You can start a Coverdell account and a state-sponsored college tuition program account for the same child.

* Coverdell and other children’s savings accounts can be opened at any financial institution that offers IRA accounts. The contributions can also be made in any of the following – stocks, bonds, mutual funds, and certificates of deposit – as long as the contribution does not exceed $2,000 per year.

To learn more about the financial benefits of starting this type of children’s savings account, talk with a financial counselor. They will be able to give you more information and answer any questions you might have.

A college education is a dream many parents have for their children. However, the cost of that education is exorbitant for many families. It’s possible to begin to save now for their education as long as they are younger than seventeen. Learn all you can about what children’s savings accounts are and how saving now can help your child with their educational future.