Grandparent cashed out UGMA account, but kept money

[Aahz]

My daughter lives in California, her grandmother lives in Washington.

My daughter, Z, turns 18 on February 18th. She is currently a full time student at a community college. Her grandmother refuses to help pay for any of her college expenses.

However, the grandmother just asked Z to send her W2 so that the grandmother can do Z's taxes. Z wants to do her own taxes.

Grandmother then said-
"Money I put away was in a Uniform Gift to Minors account which uses your Social Security Number but you gives you no rights to the money, I closed that account at the end of the year. The distribution is reported uner your SSN so it has to go on your return. Once the basis is shown there will be little or no tax on it."

Grandmother has been a licensed tax preparer for more than 20 years, so should know what she's talking about. However, nothing in that message rings true to me or matches what my daughter and I have been able to find on the web.

So, the questions are-

1) Does Grandmother's statement make sense? Is that true?
2) Is Grandmother basically stealing (back) money she previously gave to Z?
3) Since Z didn't get the money, why would it be reported on her taxes?
4) How does this all affect future student aid applications?
5) Can Z do anything, legally, to find out more about the account (if Grandmother won't give details)?

Thanx in advance!

 

[I'mTheFather]

I think Grandma is either a liar or a thief. Or both.

Has she prepared your daughter's taxes in the past?



ETA: I'm assuming that she hasn't used the money previously to benefit your daughter in any way.

 

[Aahz]

Last year was the first year Z needed to file. She did it herself with no offer of help from Grandma.

Grandma has never paid any of Z's bills. She's sent money (<$100) on occasion. But we don't even know how much is or ever was in this account. We didn't know it existed until now.

We'd also like to know if there's some clearing house Z can access with her proof of identity to find out if any accounts are open under her SSN.

 

[anteater]

It is (or was) your daughter's money. Her grandmother was just the custodian. Grandma can't just decide to take it back. Then again, your daughter will have to sue Grandma to get it back.

Any taxable events would be reported under your daughter's SSN.

No, there is no type of clearinghouse.

My memory is a bit faulty here and maybe one of the "tax regulars" will help me out. Even though your daughter may not have had to file returns before due to minimal taxable income, I believe that she can still obtain records of any 1099's filed with the IRS using her SSN. Presumably, whatever was held in the UGMA would have generated some sort of taxable income before 2013, and, therefore, a 1099. Any 1099's should give you an idea where the UGMA was held.

 

[TinkerBelleLuvr]

Anteater is correct. If the account generated more than $10, then a 1099 would have been filed with the IRS. She can ask for those to be sent to her. In addition, if Grandma took the money out and did not turn the funds over, she is a thief. Once the money is in a UGMA account that money no longer belongs to Grandma.

http://members.cunamutual.com/educationcenter/FinLibView.asp?ART_ID=13569&SITE=99999999

Custodial accounts, originally established under the Uniform Gifts to Minors Act (UGMA), provide a convenient, legal way to transfer ownership of assets to a child.

 

[Ohiogal]

Have your daughter report the theft to the police. She can file a criminal complaint. Depending upon the amount, grandma may be charged with a felony.

 

[LdiJ]

Anteater is correct. If the account generated more than $10, then a 1099 would have been filed with the IRS. She can ask for those to be sent to her. In addition, if Grandma took the money out and did not turn the funds over, she is a thief. Once the money is in a UGMA account that money no longer belongs to Grandma.

http://members.cunamutual.com/educationcenter/FinLibView.asp?ART_ID=13569&SITE=99999999

Custodial accounts, originally established under the Uniform Gifts to Minors Act (UGMA), provide a convenient, legal way to transfer ownership of assets to a child.

I agree about the 1099...however, unfortunately you cannot get a copy of those until sometime in May or June, the IRS won't issue Wage and Income transcripts until then.

I have been a tax professional for many years, and what I would do if it was my child is I would tell grandma that we wish to handle her tax returns ourselves, and ask grandma to provide the 1099 so that we can do so. If grandma refuses to provide the 1099, then I would have the daughter file for an extension to file her taxes late (form 4868) and then in late May/early June have her call the IRS and ask for an income transcript.

Once I got the income transcript then I would decide what to do about grandma taking the money.

 

[anteater]

I agree about the 1099...however, unfortunately you cannot get a copy of those until sometime in May or June, the IRS won't issue Wage and Income transcripts until then.

I have been a tax professional for many years, and what I would do if it was my child is I would tell grandma that we wish to handle her tax returns ourselves, and ask grandma to provide the 1099 so that we can do so. If grandma refuses to provide the 1099, then I would have the daughter file for an extension to file her taxes late (form 4868) and then in late May/early June have her call the IRS and ask for an income transcript.

Once I got the income transcript then I would decide what to do about grandma taking the money.

Even if there was no need to file a return in prior years, would a prior year transcript include any 1099's issued?

 

[TinkerBelleLuvr]

Have the child get a copy for a tax year PRIOR to 2013 to get the account information. You can get that prior to the May/June time frame.

A copy of the 1099s is regardless of whether a tax return was filed or not. They can get a copy of the TRANSCRIPTS for returns filed prior to 2013.

 

[LdiJ]

Have the child get a copy for a tax year PRIOR to 2013 to get the account information. You can get that prior to the May/June time frame.

A copy of the 1099s is regardless of whether a tax return was filed or not. They can get a copy of the TRANSCRIPTS for returns filed prior to 2013.

I didn't even think of that...that definitely might provide them some information.

However, if there isn't a 1099 showing in a previous year, they shouldn't automatically assume that there is no 1099 for 2013.

 

[anteater]

I didn't even think of that...that definitely might provide them some information.

However, if there isn't a 1099 showing in a previous year, they shouldn't automatically assume that there is no 1099 for 2013.

Given what Grandma said:

The distribution is reported uner your SSN so it has to go on your return. Once the basis is shown there will be little or no tax on it.

I'd say that the funds were likely invested in mutual funds and/or individual stocks and bonds, that those were liquidated, and that there will be a 1099-B floating around.

Getting Grandma to voluntarily hand it over is another matter...

 

[LdiJ]

Given what Grandma said:



I'd say that the funds were likely invested in mutual funds and/or individual stocks and bonds, that those were liquidated, and that there will be a 1099-B floating around.

Getting Grandma to voluntarily hand it over is another matter...

I agree...but if it was a bond fund there might be no 1099-B for any prior year...but there would be for 2013.

 

[davew128]

I'm going to throw out one other tidbit. There are currently only THREE states which "license" tax preparers. Washington is NOT one of them. Oh and BTW, just because she's prepared tax returns for 20 years doesn't impress me. I know many in CA who've done that and, well, suck.

If by chance GM is an attorney, CPA, or EA, this kind of conduct could cost her THAT license.

 

[LdiJ]

Even if there was no need to file a return in prior years, would a prior year transcript include any 1099's issued?

I just noticed this post and wanted to answer...

I did not suggest that the OP get a transcript of a tax return.

I suggested that the OP get an income transcript. An income transcript is a listing from the IRS of all of the forms that outside parties submitted to the IRS. It includes all types of W2s, all types of 1099s, and all types of 1098s. It includes nothing at all about any actual tax returns filed. It is normally used to file a return when someone cannot get their info from the original sources or cannot remember all the original sources.

 

[davew128]

OP can get those herself online now IIRC.