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‘Blowing’ a kid’s money

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Parents who use custodial accounts to save for their children suffer, at least a tiny bit, from the Porsche syndrome.

Even if little Joey is enraptured with differential calculus today, you can't help but wonder whether he'll blow his college fund on an overpriced sports car the minute he turns 21 (or 18 in some states) and gains control of the money himself.

When the magic time comes, there's not much you can do to steer the cash toward its intended destination. Money you stashed in the custodial account was an irrevocable gift, which means you can't just take it away. Joey could sue you to get it back, or the IRS could come after you for paying childlike taxes on money you actually wind up using yourself.

But there's an escape hatch. If your child is about to reach the age of majority, there are plenty of legal ways to spend the money before he can blow it.

The key: "Make sure that what you're doing provides a clear benefit to the child. If anybody else benefits, you may be in trouble," warns John McCabe, legal counsel for the National Conference of Commissioners on Uniform State Laws.

Possible expenditures that pass the test:

Buy him a computer. Heck, buy a scanner, printer and fax machine.

Buy him a car. Beat him to the punch and choose a car you consider to be sensible.

Send him on vacation. The trip doesn't need to be educational.

Pay for room and board elsewhere. If your child goes to prep school or a summer program on a college campus, paying living expenses is a legitimate use of custodial-account money. But don't try to scam the system by charging your child "rent" for living at home.