Unborn children can’t own property, including bank and savings accounts, because they don't legally exist until they take their first breaths. Even after they’re born, they require Social Security numbers before they can be named on accounts, either as co-owners or beneficiaries. But this doesn’t mean you can’t invest in a child’s future or set some cash aside for her before her birth. In fact, you have several options for doing so.
Garden Variety Savings
If you open a bank account for a child before she’s born, you must use your own Social Security number because she doesn't have one yet. Many banks offer accounts for minors after they’re born and particularly as they get older. After the child arrives, you can add her Social Security number to the account along with your own. These are typically joint accounts held by an adult and the minor. You and the child can both make deposits and withdrawals.
A registry service is another option for making a financial gift to an unborn child. Think of those store registries moms-to-be can sign up for in advance of their showers, guiding friends and family members to items they particularly want or need. A registry service is similar, but it’s a receptacle for money. If you want to give something a bit more useful than yet another rubber ducky, you can create such a fund or donate money to it online if the parents set one up. The baby doesn’t need a Social Security number, or even a name yet. Most of these services are designed to allow the parents to move the funds into a 529 plan for college or another savings instrument after the baby is born.
A 529 plan is one of the more popular ways of saving for and contributing to the costs of a baby’s eventual college education. The parent or other adult who opens the 529 plan is typically the owner of the account. The baby is the beneficiary of the money placed in the account, but the baby can’t be named as beneficiary until she has a Social Security number. Beneficiaries on these accounts can be changed as long as the new one is related to the original beneficiary. If you’re the baby's parent, you can open a 529 savings plan for her, name yourself as beneficiary until her birth, then change the beneficiary to your child when she has a Social Security number. If you’re not related to the baby, you can name one of her family members as the initial beneficiary, then change the designation to the child after her birth.
If the child eventually decides not to go to college, you can change the beneficiary to another family member who is planning to continue his education or you can leave the money in the account in case she changes her mind. You can withdraw the money and give her the cash, but it will be subject to taxation, which would not be the case if she had used the funds for educational purposes.
Another option is to set up a custodial account for the baby under the terms of the Uniform Transfers to Minors Act, commonly known as a UTMA account. The funds in these accounts are typically invested for growth, but you retain control and make all decisions as to how the investing is done. Initial gains are tax-free, then subsequent gains are taxed at the child’s income tax rate up to a certain limit. Further gains are taxed at your own tax rate. The exact limits adjust based on inflation, so check with an accountant if you think a UTMA account might work for you. As with a 529 plan, you’re the owner and the baby is the beneficiary, and this requires her Social Security number so it must wait until she’s born. When she reaches the age of majority, the account falls under her control -- you no longer have any say in what she does with the money. You don’t typically have the same luxury of changing beneficiaries after you’ve initially named the child to a UTMA account.