Yes, you can open a bank account for your grandchild, but the rules depend on their age and your relationship to them

If your grandchild is under 18, you can open a custodial account (also called a minor account or guardian account) at most banks and credit unions. You act as the custodian—the adult responsible for the account—while your grandchild is the owner. The account belongs to them legally, even though you control it until they reach the age of majority (18 or 21, depending on your state and the account type).

If your grandchild is 18 or older, they must open the account themselves, though you can go to the bank with them and help with the paperwork. Some banks allow you to be a joint account holder, meaning you both have equal access and responsibility for the money.

The key difference: a custodial account is for your grandchild. A joint account is with your grandchild. Which one you choose affects taxes, what happens if you die, and what your grandchild can do with the money.

Key Takeaways

  • Custodial accounts let you open and manage an account for a grandchild under 18, and the money legally belongs to them from day one.
  • You will need the grandchild's Social Security number, birth certificate, and proof of your relationship (often a birth certificate showing you as grandparent).
  • Money in a custodial account counts as the grandchild's income for tax purposes, so deposits over a certain amount may trigger tax filing requirements.
  • When your grandchild reaches the age of majority (usually 18 or 21), the account automatically transfers to their full control—you cannot keep it.
  • If you want the money to stay in your control or go to other heirs, a custodial account is not the right tool; a trust or your own account is.

What documents you need to open a custodial account

Bring your grandchild's Social Security number and birth certificate to the bank. You will also need to show your own ID and proof of your relationship to the child. Most banks accept the birth certificate as proof, since it names both the parent and grandparent. Some banks may ask for a court order if you are the legal guardian, but this is not always required for a simple custodial account.

Call the bank or credit union ahead of time and ask what they need. Requirements vary. Some institutions require the parent's permission or signature, while others do not. A few banks have stopped offering custodial accounts altogether, so confirming availability saves a wasted trip.

If your grandchild lives in a different state from you, you may still open an account at a bank that operates in both states, or at a national bank or credit union. Some online banks also offer custodial accounts, though you will need to verify their process for proving your relationship remotely.

How taxes work on money in a custodial account

The money in the account belongs to your grandchild, so any interest or earnings are taxed as their income, not yours. This is usually a benefit: a child typically has little or no income, so the interest earned is taxed at a lower rate than it would be if the money were in your account.

For 2024, a dependent child can earn up to $1,300 in unearned income (interest, dividends) before they must file a tax return. Above that, they owe tax on the excess. These thresholds change yearly, so check the IRS website or ask a tax professional for the current year's limit.

If you deposit your own money into the account, that is not taxable income to your grandchild—it is a gift. However, if you give more than $18,000 per year (for 2024) to any one person, you may need to file a gift tax return, though you typically will not owe tax unless you exceed your lifetime limit. The limit changes yearly. Consult a tax professional if you plan to deposit large amounts.

What happens when your grandchild turns 18 or 21

The account automatically transfers to your grandchild's full control. You lose access and cannot withdraw money or make decisions about it. The exact age depends on the account type and your state: most custodial accounts convert at 18, but some (called UTMA or UGMA accounts) allow you to delay until 21 in certain states.

Ask the bank which age applies to the account you are opening. If you want more control over when the money is released—for example, if you want it held until your grandchild is 25—a custodial account will not work. You would need to set up a trust instead, which is more expensive and complex but gives you more flexibility.

Once your grandchild has control, they can spend the money however they want. There is no legal requirement that they use it for education, a car, or any particular purpose. If you want to ensure the money is used for a specific goal, discuss that with your grandchild and their parents, but understand that you have no legal power to enforce it after the account transfers.

Custodial accounts versus joint accounts versus trusts

A custodial account is best if you want to save money for your grandchild and have it legally belong to them from the start. You control it now; they control it later. Taxes are lower because earnings are taxed to them. The downside: you cannot change your mind or redirect the money to another grandchild.

A joint account with your grandchild (available once they are 18) means you both own the money equally. You both can withdraw, and either of you can close it. This is simpler than a custodial account but creates complications if you die—the money may go through probate or be frozen while your estate is settled. It also counts as your asset for Medicaid or other means-tested programs.

A trust is more formal and expensive to set up (usually $500 to $2,000 with a lawyer), but it gives you the most control. You can specify exactly when and how your grandchild receives the money, name a backup trustee to manage it if you die, and even direct what happens if your grandchild dies before receiving it. A trust is worth considering if you are setting aside a large amount or have complex family circumstances.

If you are the legal guardian, not just the grandparent

If you have legal custody of your grandchild through a court order, you have more authority to manage their finances, but a custodial account still works the same way. The money belongs to the child; you are the custodian. Some banks may ask to see the guardianship order, but it does not change how the account functions.

If you are managing money for your grandchild as their guardian—for example, from an inheritance or settlement—ask the bank whether they offer guardianship accounts specifically. These are sometimes different from custodial accounts and may have additional oversight or reporting requirements. The court that granted you guardianship may also have rules about how you can invest or spend the money, so review those before opening the account.

What to do if you want the money to stay in your control

If you want to leave money to your grandchild but do not want them to have full access at 18 or 21, a custodial account is not the answer. Instead, name your grandchild as a beneficiary in your will or set up a trust that names a trustee to manage the money on their behalf.

You can also open a regular savings account in your own name and simply tell your family that it is intended for your grandchild. This keeps you in full control, but it has downsides: the money is part of your estate when you die, so it may be subject to probate or creditor claims. It also counts as your asset if you ever need Medicaid. And there is no legal may provide your wishes will be followed after you are gone.

The safest approach for larger amounts is to work with an estate planning attorney to set up a trust. It costs more upfront but prevents confusion and gives you certainty that the money will be used as you intended.

Frequently Asked Questions

Can I open a custodial account if I do not have legal custody of my grandchild?

Yes. Legal custody and custodial accounts are different things. You can open a custodial account as a grandparent even if the child's parents have full custody. The bank will ask for proof of your relationship, usually the child's birth certificate, but not a court order.

What happens to the account if I die before my grandchild turns 18?

The account belongs to your grandchild, so it does not go through your estate. However, your grandchild will need a new custodian to manage it until they reach the age of majority. Name a backup custodian (usually a parent or trusted family member) when you open the account, or the bank will require the court to appoint one.

Can I withdraw money from a custodial account for my own use?

Legally, no. The money belongs to your grandchild. Withdrawing it for yourself is considered a breach of your duty as custodian and can have tax and legal consequences. Some states allow you to use the money for the child's "support and maintenance," but this is narrowly defined and does not include your own expenses.

Do I need my grandchild's parents' permission to open a custodial account?

Most banks do not require parental permission, but some do. Call ahead and ask. Even if the bank does not require it, it is a good idea to tell the parents what you are doing, since they may need to know about the account for tax purposes or financial aid forms.

Can I open a custodial account online?

Some online banks and credit unions offer custodial accounts, but the process for verifying your relationship and the grandchild's identity varies. You may need to mail in documents or visit a branch. Call the institution first to understand their specific requirements.