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<<I am considering setting up a custodial account for the 1-year-old daughter of a friend of mine. If the income from this account is sufficiently low, no tax. If it is higher, it is taxible according to the rules that I choose not to type in here. But if taxes are due, who is legally obligated to pay them? The parents of the child, or the custodian?>>

This can get pretty tricky, so lets try to look at the big picture without too many details.

It is ultimately the child that is responsible for the payment of the tax. And if push comes to shove, it will be the child's assets that will be in jepordy if taxes are't paid and IRS comes to call.

The custodian of the account is kinda off the hook, (but not entirely in certain situations) since there could be any number of custodial accounts out there for the same child...all with different custodians. No ONE custodian will have all of the information necessary to prepare the tax return.

In this type of situation it is the parents (or legal guardians) of the child that generally have the ultimate responsibility for the filing of the tax return on the child's behalf, and the payment of the tax from the child's account. They are the only people that have access to all of the information (remember that if the kiddie tax kicks in, the parent's tax situation has to be least to some degree).

Obviously if there is a formal trust involved, the trustee of the trust is on the line for the whole enchalada if anything goes wrong within the trust. But the parents would still be responsible for filing the return for the child.

Make any sense?
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