UGMA Issues and Problems

**Ima saver** · 06-24-2006, 01:11 PM

Re: UGMA Issues and Problems

Since his mother put the money in the account, I feel it is her money.

**crosses** · 06-24-2006, 01:28 PM

Re: UGMA Issues and Problems

What a terribly unfortunate situation and one that looks like it is going to really isolate the family. I, too, am not sure that you have a right to all the money, but I am not a lawyer. I don't think that you should expect it all, but do believe you deserve any money you'd need to cover the taxes if they come to you. If she is still listed at the custodian and her son never took her off, then she has the right to take the money out. I think this is really true since she is the one that saved the money.

I think I would approach her to pay for any taxes that are needed, but let her keep the rest of the money. It's difficult to give advice since its impossible to know how strained the relationship is. An unfortunate situation.

**Ima saver** · 06-24-2006, 01:57 PM

Re: UGMA Issues and Problems

I feel sure that when she receives the money, she will also receive the tax bill. Interest on $20,000 is only about $800and the taxes are probably about $120. Ask her for the money to pay the taxes.

**sweeps** · 06-24-2006, 02:30 PM

Re: UGMA Issues and Problems

Originally posted by Ima saver

Since his mother put the money in the account, I feel it is her money.

It's a custodial account, so by law the money is the child's. OP, I think you should probably consult a lawyer.

**Ima saver** · 06-24-2006, 02:35 PM

Re: UGMA Issues and Problems

I know that, but I feel like if the mother put the money in, she can take it out! I turned over all the money in my daughter's account to her. She blew it all on a car that she totaled out two months later. I can understand why the mother does not want to turn it over to the son.

**SeraphLullabye** · 06-24-2006, 02:39 PM

Re: UGMA Issues and Problems

He didn't sign her off the account because we just found out it existed. She hit it from him. Additionally, we have just found out from a lawyer that a custodial account means that 100% of the funds MUST be spent on the child and that they are considered the minor's property. She is only custodian until he turns 21 and is considered a "fiduciary" adult. He did that in April.

We have been told that we have to report her to the IRS and Securities commission for fraud or the money will be reported as income on his taxes, and he will be taxed for it. This will then cause my husband to lose his financial aid and be removed from college that we are having to pay for to put him through while she gets a HUGE tax break and makes money off an account that is supposed to be for him to go to college and other needs according to the wording of that type of account. A UGMA (Uniform Gift to Minors Act) states that you can never take the money back for yourself apparently and you are just the guardian of the money for the child.

Our issue now is how do we find it? Where do you look for accounts in your name htat you get taxed for and don't know they exist?

**SeraphLullabye** · 06-24-2006, 02:43 PM

Re: UGMA Issues and Problems

It's not about wanting the money. It's about the fact that the governent taxes that money based on teh child (my husband) and in our name. Thus they consider it "our" income and it counts against us for financial aid and so forth. We are going to be denied aid for $22k we never saw.

If it counted as her income and the tax bill arrived in her name....great. But it comes in my husband's name and attached to his SS#. We are going to be removed from college because of her and we have NOT mispent our money and done anything wrong.

I am sorry your daughter mispent her money, but I don't think it should let someone break the law.

**Ima saver** · 06-24-2006, 03:25 PM

Re: UGMA Issues and Problems

She is breaking the law and I think she should use it to pay for your huband's college tuition.

**sweeps** · 06-24-2006, 05:40 PM

Re: UGMA Issues and Problems

Originally posted by Ima saver

I know that, but I feel like if the mother put the money in, she can take it out! I turned over all the money in my daughter's account to her. She blew it all on a car that she totaled out two months later. I can understand why the mother does not want to turn it over to the son.

That is the risk of a UGMA/UTMA account. If your child decides to run off with the circus when he becomes an adult, there's nothing you can do.

529 accounts and Coverdell savings accounts leave the control with the parent.

**sweeps** · 06-24-2006, 05:45 PM

Re: UGMA Issues and Problems

Seraph, if you can't get access to the account statements, your husband may need to sue her (unfortunately).

Just curious, how did your husband's school's financial aid office find out about the account?

**Bluezy** · 06-25-2006, 03:59 AM

Re: UGMA Issues and Problems

Originally posted by Ima saver

Since his mother put the money in the account, I feel it is her money.

Ima:

Regretfully, the money belonged to the parents until the sone turned legal age. Once of legal age, the funds become his in the eyes of law along with
tax consequences. Plus, he entered into the marriage contract making the tax liability to both son and his wife.

I looked into these accounts for our CJ and became dead-set against them. Not because I didn't want moneyset aside for our CJ to do with what he pleases, but becuase of such the tax hit he will take.

Parents utilized the accounts in good faith, trying to help out with their children's expenses. However, the parents were not fully informed of the tax consequences the children will have.

My best to the new couple, but I feel that it would be worth consulting a tax accountant on this issue. Especially if the mother did not fully disclose all the accounts.

Cheers!

**SeraphLullabye** · 06-25-2006, 05:22 AM

Re: UGMA Issues and Problems

The accounts were not reported correctly on my husband's 2004 tax return (done online by his mother so he would not see them). We received the notice for the missing taxes ($1200 bill) in the mail three weeks ago...we called the IRS thinking this was an error to find out it is not. This now means we did not file our 2005 taxes correctly and the money she is taking out this month will be reported on our 2006 taxes. Only $2000 of the $22k will be considered non taxable....ther rest of the principal will be considered taxable income btw and the interest will still be reported based on capital gains. However that drops a $22k income into our househould (which is about a year's salary for my husband right now while finisihing school and working). We will lose financial aid due to the income increase for him.

Additionally, all schools require independent verification forms for financial aid. These accounts are required to be reported on them as well as on your FAFSA (Federal Application for Studen Aid). If you are selected for verification (which we were being married in the middle of a semester for him and changing his status) they verify your taxes with teh IRS. We didn't match of course.

So....because UGMA's are trust accounts we are considered to have assets that were never given to my husband.

The tax lawyer explained it really simply. If it was not the child's money, why is it reported on teh child's taxes and not your own? You are just trusted to use the judgement of what to do until the child comes of age. It IS the child's money the moment you deposit it into a UGMA or UTMA account. Sadly, many people do not understand that.

It was a nice thought to put that money away for his educaiton. Sadly it can not be taken back though because she wants to nor because it will imbalance our household finances. We are just in a mess if anything is done with it right now. It's not enough to help and just enough to hurt if spent in any way but college tuition or something tax deductable.

**Ima saver** · 06-25-2006, 06:54 AM

Re: UGMA Issues and Problems

After reading all that, I do believe she should give you the money but specify that you use it to pay taxes and tuition. ( I would hate for you to get an attorney, they would wind up with the bulk of the money) See if you can talk to his mother, explain it like you have done here and show her that you will be responsible with this money.

**SeraphLullabye** · 06-25-2006, 08:29 AM

Re: UGMA Issues and Problems

we tried and she told him that she never intended to give it to him or for him to know about it. she just opened the account to save money and in case they needed it one day for his school, but not to give him for school. She thinks it is just an investment account and does not know what she invested her money in apparently. Scary part of that is she is an MBA in finance.

We are going to try to talk to her one more time and then we will have to report it to the IRS if she doesn't do things properly on Monday as we can not afford the income if we did not make it.

We would like to see it just left alone and kept in the bank. If she wants it he can then roll it over into an investment account for her as a "gift" or to his sister's UGMA or something so we don't get taxed. I just don't want to have income on paper that we never truly received. I hope we can get her to understand that. I would love to have it for his education, but if she doesn't want himt o have it....we don't want it. I do not want anything from anyone that they will just hold over our head or be mean about.

UGMA Issues and Problems