Uniform Gifts to Minors Spending
What authority does a custodian have to spend money in a custodial account under the Uniform Transfers to Minors Act? The Uniform Transfers to Minors Act gives broad powers to spend assets on anything they consider appropriate for the "use and benefit" of the child. Custodians may spend money on basics such as clothing as long as those expenditures dont take place of a parents legal support obligation. Under no circumstances may custodians spend money on themselves. You can buy the kid a car so that he can drive to school - you can not buy yourself a car to take him to school.
The IRS might look closely if an account held a large balance one year and a significantly smaller one the next, or showed considerable activity. If you use assets for your own purposes youre liable for taxes on the earnings and the child could sue to recover the funds.
Resource: Kiplingers, "Managing Money," Aug. 1998
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