Future Business Leaders of America (FBLA) Agribusiness Practice Test

What typically differentiates a custodial account from other types of accounts?

1. It is meant for minors only

2. It is managed by one person

3. It acts as a trust fund for a designated person

4. It allows unlimited transactions

The correct answer is: It acts as a trust fund for a designated person

The distinction that a custodial account acts as a trust fund for a designated person is what makes it unique compared to other types of accounts. Custodial accounts are created to hold assets for a minor until they reach a certain age, typically when they turn 18 or 21, depending on the law in the state where the account is established. The assets in the account are managed by a custodian, often a parent or guardian, who is responsible for making investment decisions and managing the account in the best interest of the minor. This characteristic aligns with the nature of a trust fund, as the custodian has a fiduciary duty to act in the best interest of the beneficiary (the minor), similar to how a trustee functions in a trust. The custodian's role involves overseeing the funds and ensuring they are used for the benefit of the minor, which further reflects the trust-like qualities of a custodial account. The other options do not capture the primary aspect that differentiates custodial accounts. While custodial accounts are indeed meant for minors, they can also hold assets for adults in specific situations. The account's management by one person applies to many types of accounts, and while custodial accounts may allow transactions, they are not unlimited and typically