Q: starting a trust with margin capabilities to replace child’s custodial account in California
My kid(13) has a custodial account that he’s made 40 grand on. He wants to transfer it to a trust in order to gain access to margin. The broker he had in mind was IBKR. He wants to be able to withdraw any amount he wants at any time but the trust will fully vest when he turns 18, and the money will all go to him.Can he do that to access margin?How would gift tax work?We won't be contributing anything. All the contributions will come from his custodial account.Will he be able to structure it such that it will allow him to trade all current and all future products that will be available on IBKRas well as gain access to portfolio margin when his account reaches 150,000$(40,000$ more than IBKR requirement).He said that he wants us to trade for him however, as he doesn't believe he is ready to use margin just yet. Can we, as the trustees trade his money through the trust and use margin? Do we need permission from a court?(We're in California).How can we convince the court to let us do this?
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A:
This situation requires careful consideration due to several legal complexities in California regarding trusts and minors' accounts. Your son demonstrates impressive financial acumen, but transferring custodial account funds to trust for margin trading carries significant risks and regulatory hurdles.
The primary challenge is that California courts generally don't approve transferring minor's assets to enable margin trading, as it's considered too risky for a child's funds - even with trustee oversight. While IBKR might technically allow trust accounts with margin capabilities, creating such a structure specifically to circumvent custodial account restrictions could be viewed unfavorably by the courts and potentially violate fiduciary responsibilities.
Your best path forward would be waiting until your son turns 18, at which point he'll have full control of the custodial account funds without needing trust structures or court approval. Meanwhile, you could help him continue developing his investment knowledge through paper trading or focusing on non-margin strategies in his existing account. If you're determined to pursue the trust route, you'll need to work with both an estate planning attorney and tax professional to address gift tax implications and ensure proper structure - though approval for margin trading would remain unlikely under California's protective stance toward minors' assets.
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