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How to Set Up an Investment Account for My Niece Who Is a Minor

Original post by Beverly Bird of Demand Media

It’s not difficult to set up an investment account. Find a brokerage firm you’re comfortable with, fill out the required paperwork and begin funding the account. When you’re creating one for a minor, however, and when the minor is not your own child, you also have to make several decisions that may have long-term ramifications.

Step 1

Decide how long you want to be responsible for the account and oversee its investments. This dictates the type of account you would open. If you choose to make the gift under the Uniform Transfer to Minors Act, you can remain custodian of the account for a limited period of time after your niece reaches the age of 18. Otherwise, if you create the account under the Uniform Gift to Minors Act, your control terminates as of her 18th birthday.

Step 2

Determine the amount of your initial investment. Some firms will allow you to open an account with as little as $100. If you begin the account with significantly more than that, tax ramifications may creep up sooner rather than later. When your investment begins to earn more than $1,900 per year, the IRS will tax it at your rate rather than the lower rate usually applicable to a minor. You can also only fund the account up to $13,000 per year without incurring a gift tax for yourself.

Step 3

Speak with your niece’s parents about who should be the custodian of the account. Some states will make this decision for you; even if you create and fund the account, only a parent can act as its custodian. Other states give you the choice. The brokerage firm you choose can tell you the law in your state.

Step 4

Complete a custodial account application with the brokerage firm you’ve chosen. It will require identifying information for both you and your niece if you’re the custodian, or one of her parents if you are not going to act as custodian. In most cases, you can also name a successor custodian in the application, who will step in if the first custodian dies or becomes incapacitated. Submit the application and fund the account.


Tips & Warnings

  • If you choose a UGMA account, your niece automatically takes over control of the account when she turns 18. There is nothing you can do to prevent this. If you have any doubt that she’ll be mature enough to handle such a responsibility, choose a UTMA account instead so you can maintain control of the investments a little longer.


About the Author

Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Come the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.