Transfers to Minor Account

[Margaret CPA in OH]

Client's parents have been funding Uniform Transfer to Minor to children.  Accounts are in ssn's of kids so income has been reported as required in their names.  Oldest began college using those funds.  I'm not quite able to decipher from my research whether the money is applicable for education credits.  My logic says the money has been gifted to the child with the intention to use for college but it is his and he is spending it from his account.  (Years ago I recall a saying that these accounts would be used for one of the 3 c's: college, car or cocaine as the funds were available to the minor at 18 or other age according to the state law.)

The parents are using the term 'trust' but the Vanguard statements are UTM.  I don't think there is a separate trust although will ask.

Comments?  Another first after 20+ years - wish this would stop.

 

[Lion EA]

College kid has investments with Vanguard and pays taxes on interest, dividends, and capital gains on his/her tax returns.  Kiddie Tax applies, also.

If kid is a dependent, parents will take education credits.

Lots of twists along with the above, but that's the short course.

[jasdlm]

Agree with Lion.  Don't forget kiddie tax.

[Margaret CPA in OH]

Thanks, short course was just what I needed and glad to know my logic was on track even if the brain was weary (legs, too, after 18 mile run at 7 this am). I do have the kiddie tax issue going with 2 of the 3 kids.  The third is below the passive income level.  Parents won't be happy with the extra time but maybe the ed tax credit will help.  Thanks again!