About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

40 Va. Tax Rev. 475 (2020-2021)
Custodianships, Trusts, and Guardianships

handle is hein.journals/vrgtr40 and id is 493 raw text is: CUSTODIANSHIPS, TRUSTS, AND GUARDIANSHIPS
Grayson M.P. McCouch*
Gifts to a minor beneficiary often take the form of a statutory
custodianship under the Uniform Transfers to Minors Act (or its predecessor,
the Uniform Gifts to Minors Act). A custodianship functions as a simple,
convenient alternative to an outright gift of property or a gift in trust for the
minor beneficiary, avoiding the need for a court-appointed guardian as well
as the expense and formality of an express trust. Although less flexible than
a custom-tailored trust, the custodianship may be viewed as a hybrid
arrangement that embodies aspects of both a guardianship and a trust.
The conceptual ambiguity of the custodianship is reflected in the federal
tax treatment of the donor, the custodian, and the minor beneficiary. For gift
and estate tax purposes, the Service views the creation of a custodianship as
a transfer in trust rather than an outright gift. The trust analogy does not
jeopardize the gift tax annual exclusion, but it does mean that the transferred
property may be includible in the donor's gross estate if the donor dies while
acting as custodian. For income tax purposes, the Service views the minor as
the owner of the custodial property, with the result that income from the
property generally is taxed directly to the minor. Nevertheless, the Service
insists that the minor's parent is taxable on any income that is actually used
to discharge the parent's legal obligation to support the minor. The Service's
approach appears to rest on a misreading of the powers and duties of
custodians under local law as well as a misapplication of grantor trust
principles. The Service should reconsider its bifurcated income tax approach
and treat all income from custodial property as taxable directly to the minor.
TABLE OF CONTENTS
I.   IN TRO D U CTIO N .................................................................................. 476
II.  CUSTODIANSHIPS IN  CONTEXT.......................................................... 477
III. FEDERAL TAX CONSEQUENCES ........................................................ 489
A. Gift Tax ....................................................................................... 490
B. Estate Tax ................................................................................... 495
C. Income Tax ................................................................................. 502
IV. CONCLUSION ..................................................................................... 510
Clarence TeSelle Professor of Law, University of Florida.

475

What Is HeinOnline?

HeinOnline is a subscription-based resource containing nearly 3,000 academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline with pricing starting as low as $29.95

Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most