Here is a financial checklist to refer to when your child turns major.
When your children turn 18, it is no doubt, a major milestone for them as well as you! You would be happy to see your child grow into a young adult. At 18 years, your children become eligible to vote to choose the leaders of our country, to hold a driving license and also become eligible to hold assets in their names independently, without any guardianship.
It is not uncommon for parents to create and hold both physical and financial assets in the name of their minor children. Many parents prefer investing in their child’s name so as to earmark it for the financial goals related to the child and register themselves as guardians of those assets.
But what happens to those assets when your child turns 18 years and hence, is legally recognized as a major? Can your child encash/redeem/sell the assets in her name on her own will? Can you claim back the assets in her name? Will you even have any legal right over the assets you have created in your child’s name after she becomes a major?
Let us understand more.
As minors, your children cannot sign any legal papers or carry out financial transactions or enter into contracts or issue third party cheques. When they attain majority, they are eligible to do any of the transactions mentioned above.
Can you withdraw the assets in your minor child’s name?
Many parents prefer not to hand over the financial assets to their child and want to withdraw it. As a guardian, you can choose to withdraw those assets before your child becomes a major.
However, any interest received or gains made from a minor’s account is added to either of the parent’s income and taxed.
If there are any physical assets in the name of a minor child such as real estate, you would need the permission of the court to sell the same.
Can you claim the assets you created in your child’s name after she turns major?
No. All financial assets get frozen as soon as your child attains majority. She is eligible to receive all the financial assets in her name, irrespective of the fact that it is acquired by you. If there are any physical assets such as real estate in her name, she can choose to sell it and no permission is required by the court. If any guardianship was registered, it becomes invalid. If your child receives interest or makes gains by selling an asset, she is liable to pay tax on it.
What are the implications if you nominate your minor child to receive your assets?
You are legally allowed to make your minor child as nominee for your assets but a guardian has to be mandatorily appointed. Your child will be eligible to receive the assets only after she attains majority. If there are any other beneficiaries of the asset being referred, they have to wait until the nominee attains majority to claim their share.
What is the process to convert an asset into a minor’s name to an individual status?
The first and the foremost steps to be taken once your child attains majority are:
1. PAN Card
PAN card is mandatory for any type of financial transactions. If your child doesn’t have a PAN, apply for one or if she already has a PAN, apply for reissue of the PAN card with the photo and the signature of your child included.
2. Valid ID Proof
Since your child is a major now, she would need an ID proof with her recent photograph and signature. You can get her passport updated with the latest photo and address or obtain a driving license with the current address updated.
With a PAN card and ID proof in hand, you can initiate the process to convert assets in a minor’s name to that of an individual. However, the process for the same varies for each asset type.
Let us understand the process to convert from minor to major for each asset type.
1. Conversion of bank accounts from minor account to major/regular account
The bank accounts in your child’s name will be frozen once she turns major, and even the guardian is not allowed to operate it.
To convert a minor account to an individual savings account, you have to visit the bank along with your child for in-person verification, along with PAN card and ID proof. Some banks just upgrade the same account and allow you to maintain the same account number and some banks ask your child to open a new account and transfer the funds of the minor account to it.
The bank will obtain specimen signatures of your child on the request form as well as your consent for converting the account to major. She will be eligible to receive chequebooks, make fund transfers and have an independent debit card.
Having an independent bank account is a major step as your child has to furnish the bank account details for accessing other financial assets.
2. Conversion of FDs, RDs etc. in banks
If you have opened an FD or an RD account in the name of your child, the process to convert them into normal FD/RD accounts is similar to that of the bank account.
However, you have to request for removal of guardianship of the account and update your child’s bank account number to which the maturity proceeds are to be credited.
3. Conversion of MF Holdings
To convert MF holdings in a minor child’s name to a normal unitholder, the first step you have to undertake is to get KYC done.
You would require the below documents for KYC:
1. Copy of PAN attested with signature.
2. Filled KYC form for the new investor
3. Valid address proof such as passport, driving license etc.
Once the KYC is done, you have to submit a request to change the status of MF holdings from minor to major, along with a cancelled cheque of your child’s bank account.
4. Conversion of Demat Account Holding
A guardian can open a Demat account in the name of a minor and trade securities.
To convert a minor account to an individual one, some firms may ask your child to open a new Demat account and transfer the shares held to the same. The minor account would be closed.
Some firms upgrade the minor account to an individual one but follow the same process as opening a new account.
Your child also has to sign a new agreement with the Depository Participant (DP) such as CDSL or NSDL. You also have to get your child’s new bank account linked with the trading account.
5. Conversion of PPF accounts
If there is a PPF account in your child’s name, then to convert it to an individual PPF account, you have to submit your child’s photo, PAN copy, address proof and ID proof along with a cancelled cheque and get a fresh passbook issued for the account.
However, the account maturity date will still be the same as that in the minor account.
Final Words :
As parents, we should be clearly aware of the impact of creating assets we hold in our child’s name. If you want to create an asset for your own use, it is better to avoid involving minor children in it. Also, when they attain majority, you will have no right to it even though it is acquired by you.
However, if you want to create assets in your child’s name and don’t mind them taking over once they attain majority, go ahead. But the minor accounts have to compulsorily convert to individual accounts once your children complete 18 years.
As you can observe, the process to change the status of assets from a minor to an individual has to be initiated with an individual PAN card and ID proof in hand. Opening an individual bank account is the next important step.
Armed with these, you can smoothly change the status of the assets held in your minor child’s name to individual ones.