Question

Are custodial funds included in the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position?

If so, list them. Describe the purposes for which they exist.

please explain not copy and paste from other sources

Answer 1

Answer :-

Yes…Custodial funds will be reported in a statement of fiduciary net position. In addition, the statement of changes in fiduciary net position will include custodial fund activity. This change will result in more detail of additions to and deductions from custodial funds than currently reported for agency funds.

Custodial funds are used to report fiduciary activities that are not required to be reported as another fiduciary fund type.

A fiduciary fund is used in governmental accounting to report on assets held in trust for others. When financial statements are prepared for fiduciary funds, they are presented using the economic resources measurement focus and the accrual basis of accounting

The four types of fiduciary funds are as follows :-

· Pension (and other employee benefit) trust funds,

· Investment trust funds,

· Private-purpose trust funds, and.

· Custodial funds.

Custodial Funds: All principal and interest collected on account of the Mortgages and/or the property securing the Mortgages and any other funds due to the Security Holder; any tax, insurance or other non-principal and interest funds collected for the benefit of the Mortgages or the property; and any unscheduled

A custodial account is a financial account (such as a bank account, a trust fund or a brokerage account) set up for the benefit of a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary

Functioning of a Custodial Account

A custodial account functions like any other account at a bank or brokerage.

The Custodian :- A designated manager or investment advisor decides how to invest the money.

The five largest custodian banks in the world were :-

1. The Bank of New York Mellon

2. State Street Bank and Trust Company

3. JPMorgan Chase

4. Citigroup

5. BNP Paribas Securities Services

Custodial Account :-

Custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence). Approval from the custodian is mandatory for the account to conduct transactions, such as buying or selling securities.

A custodial account can mean any account maintained by a fiduciarily responsible party on behalf of a beneficiary, such as an employer-based retirement account handled for eligible employees by a plan administrator. A fiduciary is bound ethically and legally to act on the best behalf of another's interests.

Each state has specific regulations governing age of majority and the naming of custodians and alternate custodians.

Two Types of Custodial Accounts :-

Custodial accounts come in two basic varieties:

The Uniform Transfers to Minors Act (UTMA) accounts

The Uniform Gift to Minors Act (UGMA) accounts.

UTMA accounts can hold virtually any kind of asset, including real estate, intellectual property, and works of art. UGMA accounts are limited to financial assets of cash, securities—stocks, bonds, or mutual funds—annuities, and insurance policies. All U.S. states allow UGMA accounts. However, South Carolina does not allow UTMA accounts.

Both UTMA and the older version UGMA have custodial accounts set up in the minor's name, with a designated custodian—usually the child's parent or guardian. Initial investments, minimum account balances, and interest rates vary by the company that houses the account.

Functioning of a Custodial Account

A custodial account is a savings account set up and administered by an adult for a minor.

Custodial accounts have enormous flexibility with no income or contribution limits, or withdrawal penalties.

Custodial accounts do not require distributions at any point.

Gifts to a custodial account are irrevocable.

The account's holdings irrevocably pass into the minor's control when they come of age depending on their state of residence.

Advantages :-

· Easy to establish and manage

· Free from income, contribution, or withdrawal limits

· Can invest in a variety of assets

Disadvantages :-

· Less tax-advantaged than other accounts

· Can hurt child's financial aid prospects

· Irrevocably pass to child upon majority

Example :-

An individual can contribute up to $15,000—$30,000 for a married couple filing jointly to an account in 2020 without incurring the federal gift tax.

The Present Secnerio of Custodial Accounts :-

Most brokerages, both digital and brick-and-mortars, offer custodial accounts. Custodial account terms usually parallel that of their regular, non-tax-advantaged accounts for individuals.

An UGMA/UTMA custodial account can be set up online with funds directly transferred from a checking or savings account at Bank of America.

There are no annual account fees or minimum investment amounts.

Account-holders pay a flat rate of $6.95 per day for stock and ETF trades,

Mutual funds trades cost $19.95 per transaction or may be priced according to the rate specified in the fund prospectus.

Some mutual funds are load-waived or no load/no transaction fee funds.