UTMA: "withdrawals"
Gary Pritchett
I have a modest sum in my 9 year old's UTMA. She
begins orthodontic work next year. Is this an
acceptable expense such that I could withdraw the
sum required from her UTMA without the IRS going
ape on me? What procedures/record keeping would
be required?
Dan Evans
Gary Pritchett <gary.pr...@FMR.Com> writes:
I don't know which state law applies, but according
to section 14(a) of the UTMA as originally proposed,
the custodian "may deliver or pay to the minor or
expend for the minor's benefit so much of the
custodial property as the custodian considers
advisable for the use and benefit of the minor,
wihout court order and without regard to (i) the
duty or ability of the custodian personally or of
any other person to support the minor, or (ii)
any other income or property of the minor which
may be applicable or available for that purpose."
So, as a matter of state law, the payment should
be appropriate. However, I have seen at least
one case in Pennsylvania in which a daughter
successfully sued her own father for the return of
custodial funds, the court holding that the costs
paid by the father were part of the father's duty
of support, and should not have been paid out of
the custodial funds. This result seems to be
possible under section 14(c) of the UTMA.
The IRS shouldn't really have much interest in the
issue, although it might be possible for the IRS
to argue that the income on the custodial funds
is taxable to the parent in the year in which the
payment is made, instead of the minor, because of
the discharge of the parent's duty of support and
the application of 677(b), even though a custodial
account is not usually considered to be a trust.
Dan Evans ************************
http://www.netaxs.com/~evansdb
This is not a legal opinion unless
you agreed to pay for it.
**********************************
hugbe...@aol.com
> I have a modest sum in my 9 year old's UTMA. She
> begins orthodontic work next year. Is this an
> acceptable expense such that I could withdraw the
> sum required from her UTMA without the IRS going
> ape on me? What procedures/record keeping would
> be required?
As has already been pointed out, this is primarily a
matter of state law, and not of taxes, and, as such,
should be discussed with your attorney.
In GENERAL, money in a UTMA or UGMA account cannot be
used for items of support that are usually provided by
a parent, which would include medical and dental care
necessary to prevent disease or illness. Orthodontic
work needed in order to restore proper function to
teeth could be interpreted to be in that category, but
orthodontic work that is strictly for appearance sake
might not. Likely this is something you need to
discuss locally with a professional and go with his
or her advice.
Lester M. Levy, MD
While the above is a very scholarly discussion, with
all due respect, it is scarcely practical to consult
with an attorney and/or tax professional about this
issue.
First, orthodontic correction, while deemed essential
to a successful life by middle-class parents (and may
prevent other dental mishaps), is rarely a medical
necessity, and would not normally fall in the category
of obligatory parental responsibility. (Apologies to
the dentist.)
Second, who is going to challenge this expenditure?
Except under the most bizarre of circumstances (where
a separate guardian might intervene), only the child
upon reaching the age of majority would be in a
position to do so. While this IS an age of the
bizarre with children suing their parents, it is
likely that the child is a willing and enthusiastic
supporter of the plan to do the orthodontics.
Like all handling of financial accounts especially
involving others, it is important to maintain (and
not lose) a journal with current entries, detailing
the expenditures with notation that it is for the
cosmetic benefit of the child, that the child wishes
the procedure, and that it is not feasible to do it
without the partication of the UGMA funds.
(Unfortunately, not a tax pro.)
--
-Lester M. Levy, MD ll...@hoflink.com