When Does Custodianship Come Into Play?

December 21, 2017, In: Home

In business, the term custodian designates an individual or institution that has the legal power and authority to act as an agent and handle the financial assets of another person or company. The custodian might engage in holding bonds or equities, buying and selling, ensuring the company remains compliant with taxes, reporting assets and otherwise managing all accounts and transactions of the client. Most commonly, accounting firms, law firms or banks become custodians.

What Does a Custodian Do?

A common custodian for individuals and businesses are banks or financial institutions that handle investments on behalf of the entity. The bank has the power to move funds, buy or sell bonds or securities and otherwise monitor activity and take beneficial action for the individual or owner. The custodian will also handle preparing and filing tax returns on behalf of the client. A custodian will maintain open communication with the individual or business, reporting on the account activity, generally through monthly or quarterly statements.

A custodian might also provide services as a mediator between buying and selling so that a buyer and seller do not have to meet in person. This generally happens in the stock exchange, so a custodian ensures that your money goes to the right place.

When Are Custodians Used 

Many businesses choose to appoint a custodianship to handle the transactions, especially for those who wish to be absentee owners or who do not want to involve themselves in the complicated transactions required. Another reason that a custodianship might come into play is to control assets held by an incapacitated adult or a minor.

In general, custodianship provides some safety to individuals and owners. The custodian takes care of their investments so they do not have to worry about loss, theft or navigating financial transactions they do not completely understand.

A custodian can be used for individuals or business entities, such as an LLC in South Carolina. You might need an IRS-EIN-Tax-ID as well. At IRS EIN Tax ID Filing Service, we can help with an EIN lookup or the application for a new one. Contact us to learn more.


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