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Subject:  Re: Use of funds in a UGMA Date:  12/19/1997  8:25 PM
Author:  TMFTaxes Number:  954 of 127753

<<Can funds in a UGMA/UTMA be used (presumably for the child' benefit) without any signficant
restriction? Are there any tax implications if used? Do any records need to be kept of the
transactions or does one have to prove that the funds are used for the child's benefit?

Sorry if this question has been asked and answered...I'm new to the board.>>

This gets more into a legal issue than a tax issue.

It is my understanding that when you make a gift to a minor, you have really, legally, made a gift...and the funds now become the legal property of the minor. But since the minor is just that, a minor, somebody must act in the interest of the minor as a custodian.

And the custodian must act in the best interest of the minor, and act in the minor's benefit. If the custodian is actually taking funds from a UGMA account, they are actually STEALING from the minor, and can be subject to civil and criminal damages for such theft.

Who would know??

I have a true story for you...Grandma gave, over the years, more than $50k to granchild in a UGMA. Child is now 16, and really knew nothing about the UGMA account. Grandma and grandchild were talking one day, and Grandma asked where the kid would like to go to college. The kid answers "State U, but Mom and Dad tell me that they don't have enough money to afford to send me to State U".

Grandma goes ballistic, and begins proceedings to prosecute Mom and Dad. Kid jumps on the bandwagon and hires his own attorney (it is conservatively estimated that the UGMA account would have grown to over $120k by hard do you think the kid had to look to find an attorney to take this on contingency).

As it stands right now, kid may end up owning parents house, and will evict 'em if he ever gets it.

So, before you start thinking about dipping into little Johnny's UGMA account, you might want to think again.

TMF Taxes
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