DEFINITION of 'Custodial Agreement '

An arrangement whereby one holds an asset or property on behalf of the actual owner (beneficial owner). Such agreements are generally entered into by state agencies or companies to administer various benefit programs.

BREAKING DOWN 'Custodial Agreement '

An example of a custodial agreement would be a company retirement plan. Many, if not most, companies hire a third party to administer such plans: to collect payments from the employer and employees, invest the funds and disburse the benefits. The advantage of this arrangement is that the beneficial owner gets professional advice, which saves time, and often pays lower fees than would otherwise be available had the monies been handled by each individual owner.

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