I have a very small (2K) UTMA that I just started for my step grandaughter. Not withstanding that its a bad thing to do, I want to dissolve the account and use the funds myself. What are the tax consequences of this action and can I do this legally? I do not want to spend the funds on her in another way.Jaded in Austin.
Optional Information: Country relating to Question: United States State (if USA): Texas Already Tried: Nothing
Hello and welcome to JustAnswer. I would be happy to help you with your question.
To answer your question......................If a UTMA account for a minor is started by an adult, the account can be closed out by the adult who started it on behalf of the child. If this is not a tax qualified account there would not be tax consequences to the parties involved.
It is legal to close out an account that was started as a UTMA account for a child by the adult who started the account.
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Do the funds have to be used for the benefit of the minor once the account has been closed?
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Am I missing something or not responding in the correct format? Still waiting on response to my previous question. Thanks so much!
The check to close a custodial account must be made out in the same way that the account is titled. Therefore the check would come back payable to the adult for the benefit of the minor child. The adult could not then take the funds and place it into an account for him/herself, but must place the check into an account in the minors name. This prevents an adult from completing a gift to the minor, placing it into a UTMA account and then cashing it out him/herself.
Thank you very much. That is exactly what I wanted to do- take the funds out and use them myself. Looks like that may be illegal.