Does the rule apply to UTMA accounts?
The legal experts who created the Uniform Transfers to Minors Act were aware of this rule and seemed to believe it was undesirable to have the parents pay tax on this income. In their official commentary on the Act, they note that the income tax regulations say a legal obligation to support another person exists only if under local law (that is, whatever state law applies) the obligation is not affected by the dependent’s own resources. Here’s what that means. The laws of some states may say that a parent has to provide the child’s support even if the child has enough money to support herself. In this case, the parent would have to pay tax on income from the child’s assets if that income was used to satisfy the parent’s support obligation. The laws of other states may say that if the child has enough money to cover her own support, the parent is relieved of the support obligation. In this case, income produced by the child’s assets would be taxed to the child even if used to cover expe
