Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: If a father is custodian of a minor’s account under the state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), is the custodial account subject to an IRS tax lien on the father?
Answer: No, under normal circumstances. The money in an UTMA or UGMA account belongs to the child, and the parent is only acting as a fiduciary on the child’s behalf. Under that legal analysis, the account wouldn’t be subject to the parent’s tax liens.
However, if it can be shown that the father transferred money to the UTMA or UGMA account when he knew he owed money to the IRS, the result might be different. If a parent has a tax lien and conveys money to an UGMA or UTMA as a device to try to avoid the tax lien, it is likely that the IRS would follow the money.
On the other hand, if the source or the money was from grandparents or others, or the accounts were in existence prior to the tax lien, then the account is probably safe.
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