05 Oct Taxes on newly found investment account
Q. My dad recently died, and I just learned I have an UTMA that my parents started when I was a teenager. I’m now 47, and I don’t think taxes were ever paid on this account. What can I do about it?
— Inherited questions
A. You’re going to have to do some legwork here.
When the UTMA account was originally opened, your Social Security number would have been used to open the account, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.
Normally each year, the financial institution where the UTMA was held would have issued a tax document called a 1099 under your Social Security number, Maye said. This document would have shown the reportable income for tax purposes related to the UTMA account, such as interest, dividends, capital gains and losses.
Maye said if the UTMA was all in cash and generated a nominal amount of interest income, it is possible no 1099 was ever issued.
“It does seem strange that if your parents were receiving an annual tax document with your Social Security number they never passed that information on to you, particularly as you got older,” Maye said. “Equally strange is that the IRS never noticed this because this is something that could be easily flagged via matching your Social Security on a tax document from a financial institution missing from your return.”
Maye recommends you contact the financial institution and obtain the historical tax documents — 1099s — for this UTMA account.
Additionally, you will also want to request the historical cost basis from the financial institution, which they may or may not have because the requirement to provide cost basis was only introduced over the last several years. You will need this information if you were to ever sell the underlying investments in the UTMA, Maye said.
Once you have the historical 1099 information, speak with your own tax preparer to determine whether you need to file any amended tax returns for unreported income.
“As a final bit of housekeeping, you will also want to get the account re-titled into your name as an individual account,” he said. “Remember with an UTMA in the state of New Jersey, once a child turns 21 they legally can take control of the account.”
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This post was first published in October 2016.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.