A grandmother gives her grandchild a $10,000 gift that is used to open a custodial account under the Model Gifts of Securities to Minors Act. The grandchild”s father acts as custodian/trustee of the account. Interest on the account for 2012 is $200. Who reports the interest?
a. Incorrect. The grandmother, who donated the funds, does not report the interest because she has given away the money.
b. Incorrect. The father does not report the interest even though he acts as the account”s custodian or trustee.
c. Correct. The grandchild reports the interest because his or her Social Security Number is used for a custodial account.
d. Incorrect. Interest earned in this type of account is not tax free.
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