Custodial accounts are typically used to save and invest for a minor in hopes that they will be able to use their funds in a more productive way when they reach adulthood.
Custodial accounts allow custodians to invest the money into a variety of assets. Most commonly, parents establish these accounts for children to build assets they will eventually own in the future.
This works by having any investment income earned in the account, including dividend, interest or capital gains income generated from assets held in the account, fall under the child’s tax rate once reaching the age of majority.