Legal Question in Wills and Trusts in Massachusetts

effect of distribution on taxes and fund held for minor

It depends on the specific terms and the language of the will which created the account. Someone must be in charge of the custodial account. I would suspect that the account for which the child is the beneficiary, is apparently using the child's social security number. I do not understand why a trust account was not created.

If you have more information, I will be glad to add to my opinion.

Re: effect of distribution on taxes and fund held for minor

It depends on the language of the Will and the Trust. Also, it may be possible to role over the Account into an IRA account for the minor, check with a CPA, and avoid the tax altogether. Without reading the provision in the Will it is difficult to tell. Also, the income tax on the distribution should be paid by the estate unless it is a distribution to the child as a contingent beneficiary of the IRA directly.

If it is a direct distribution, you may be able to rollover part or all of the distribution and avoid the tax in its entirety. The child can then use the money as early retirement savings for herself.

Good Luck.

Re: effect of distribution on taxes and fund held for minor

Any specific bequests in her Will can only be distributed from her probate estate. However, IRA funds are distributed outside of the decedent probate estate. Instead, they go directly to the designated beneficiaries or contingent beneficiaries.

Regardless, your questions are best answered by a tax attorney or accountant.

Re: effect of distribution on taxes and fund held for minor

Although you are well advised to contact an accountant, from the facts you present (a bequest in the will, and not a beneficiary provision in the IRA agreement), the tax provisions of the will should be checked, as the estate may have some obligation in that regard (this might require review by Florida counsel). Otherwise, it would be reasonable to pay income taxes on the distribution from the custodial account. As far as using the custodial account to purchase things for the grandchild, it may be okay, provided that it is not substituting for support obligations of the parents. It would be a good idea to discuss with an accountant, bringing in all relevant documents in your possession concerning the IRA.

(The accountant will advise you on the impact of having taken the full distribution as a lump sum, instead of spreading it out, but speak to them first. They may refer you back to a tax attorney.)