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UTMA Account Transferred to Custodians Account by Bank Error

We had $24k in an UTMA CD account in my daughter's name (she is 4) and when the CD matured the bank somehow screwed up and transferred the funds to my (father and custodian) savings account instead of hers (another UTMA savings account). They say there is nothing they can do to undo this (actually the CD has not matured yet, but they have already transferred the amount it would have had at maturity!) They said the best thing I can do is transfer exactly the amount ($24k principal and $599 interest) from my account back into hers. They said the worst thing that can happen is that the IRS would want to treat the $599 as interest taxable on my return instead of hers (she will not file a return, because she only has a few hundred dollars in interest income).

Naturally I am not inclined to take tax advice from a bank that apparently even perform routine banking functions like make routine transfer or evaluate creditworthiness of its debtors (this is one of the largest banks in the country that received tens of billions of bailout funds).

So what is the best course of action here?

Reply to
TheMightyAtlas
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Does the bank refuse to issue the 1099 to the right taxpayer ID number (namely your daughter's)? This isn't like an IRA - what actually happens to the money is irrelevant as long as it is put right. Since it was your daughter's money, and the bank acknowledges that, they should issue the 1099 to her. That should be the end of the matter.

Reply to
Stuart A. Bronstein

And since she'd have a $950 kiddie tax exemption, but you'd pay at your marginal rate, tell them they can give you the extra $300 to cover it. (since they'd be sue to 1099 you the $300, you'd clear $200 to cover your taxes on the $599.

All sarcasm aside, they need to fix this. If they don't I'd take my business elsewhere. Joe

Reply to
JoeTaxpayer

I assume they will issue the 1099 with the right SSN (though I guess, who knows, with this level of incompetence) For some reason they seem to think that because the money went from me to her for a year, and then came right back, the IRS will want to override the fact that the interest was reported under her SSN.

I figure that even though I am not supposed to transfer money from her account to mine, because the initiat transfer is irrevocable, this was purely unintentional on my part, and as long as I fix it as soon as possible, no harm, no foul, right? The only person who would be concerned about my breaching my fiduciary duties would be her and anyone else who was forced to support her (if, god forbid, she somehow ended up in care of the state). And why would anyone care if the money accidentally went into my account for 48 hours.

Reply to
TheMightyAtlas

I agree with you Stu, but since they are obviously dealing with idiots . . .

If the interest is 1099'd to the wrong entity, can that entity treat it as nominee interest and back it out of their tax return, and the correct entity list the interest? In case the bank cannot get things right.

Reply to
Wallace

That's what I'd do.

And I agree with Joe. OP, get thee out of that bank ASAP.

Phil Marti VITA/TCE Volunteer

Reply to
Phil Marti

Even if they don't fix it, consider taking your business elsewhere.

The bank obviously wasn't smart enough to follow their own contract. What do you think would have happened if the error deposited the money into an UNRELATED account?

Reply to
D. Stussy

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