Question

Explain the distinction(s) between custodial funds and trust funds. What financial statements are prepared for each?

Answer 1

Difference between custodial and trust funds

BASIS	CUSTODIAL FUNDS	TRUST FUNDS
Meaning	It is a savings account which is controlled by an adult for a minor	It is a fund which consists of assets belonging to a grantor , held by Trustee(manages asset in the trust) to be used by beneficiaries (who receives the asset and income).
Money controller	In it , the beneficiary(the person in whose name fund has been opened) can use the money when he reaches a certain age and use the money the way he/she wishes to.	In it,Certain restrictions are made by the trust like how much will be paid to beneficiary or at what age he becomes eligible to receive payments and how often he will receive it.
Flexibility	It is more flexible as there are no restrictions on how money can be used.	It is comparatively less flexible as restrictions are there in it.
Complex and cost	It is simple to open and also cost effective.	Setting up is very complicated in it and it is also very costly.
Advantage	Since the account is in minor child's name, he gets tax advantages on his parent's unearned income.	It helps to protect privacy.It helps in avoiding use of assets in case of Court proceedings.

Financial Statements for Trust Funds and Custodial funds include:-

• Statement of Fiduciary Net Position
• Statement of changes in Fiduciary Net Position