Maybe I misunderstood what is meant by "custodial money".

custodial money could mean 529 or UGMA/UTMA accounts.
I think I usually have seen "custodial account" to mean the latter.

There are 529s that are also UGMA/UTMA. Those have their own rules that if you're dealing with that, go read up on them.

Spending down UGMA/UTMA accounts before filing FAFSA is generally good advice. They don't require you to spend the $ on college costs - but it does have to be legitimate needs/for the minor's benefit. http://collegesavings.about.com/od/ugmautmacustodialaccts/ss...

Unlike what I gather from reallyalldone's response, I think the best thing to do is to try to maximize what can be gotten from financial aid legally. For example, it's a good idea to pull from a UGMA account to pay for DS/DD band trip their junior year instead of paying for it from my pocket, and then paying from my pocket for college tuition a year later instead of paying from their UGMA account. Sure it's not a big difference (20% of the money counted to family contribution if it's student's asset vs. 5.64% of the parents) But ~15% of $2K is $300 - which IMO makes doing that kind of shuffling worthwhile.