What is a Custodianship? | IRS Definition of a Custodianship

Custodianship has a fairly broad definition. Any time an individual takes control of another person’s assets for their benefit, it’s considered custodianship. For example, a custodian could be a bank that protects the individual’s money, or a financial advisor that invests the money for them. Custodians don’t take ownership of the funds, but they do take control over the funds.

Custodians are a part of finance that’s regulated by a number of financial industries, including SEC. It’s important that custodians be aware of their responsibilities and what they can and cannot do in relation to the funds that they are managing.

Since custodians can be bankers, brokerages, and more, understanding custodianship and the relationship requires understanding the actual relationship in question. However, a couple things remain consistent: the custodian does have to manage funds to the best of their ability and should obtain an EIN. If the custodian fails to do so, it can become a legal and regulatory issue.


Written by Maurice Mallory