My two sons have reasonably large investment accounts. The
19 yo is in his own name, the 13 yo is under the gift to minors act. It was recommended that they both be changed to trust accounts so they don't have access to the money until they are older. What are the tax implications? Do the trust and the individual file separate tax returns, or are they consolidated? Any other issued to be concerned about?
Recommended by whom? Sounds like one of the worst ideas I've seen come down the pike in a while. Regardless of whether it's a good idea, we're talking about the sons' money. For the elder son, it would require his consent and action. I'm not sure whether the custodian of the younger's account has the authority to do this or not. This is more a legal than a tax question.
The transfer to the trust is a gift. If the amount exceeds $12,000 the transferor must file a gift tax return and use some of the unified credit.
For the type of trust you're talking about the trust has its own filing requirement. It also has a small exemption and steep rates. Take a look at the instructions for Form 1041 to get an idea.
-- Phil Marti Clarksburg, MD
With the 19 year old that can't be done. He is technically an adult and in control of his own money, and you can't change that. With the 13 year old a gift to minor's trust allows you to keep it out of his control until he is 18. It would have been possible to have created a trust that does not terminate when the child turns 18, but that would have had to be done before the first gift was made. It's too late now, except unless you want to set up a new trust for the younger child, and only put new funds into it. You can't legally take anything from the Minor's Trust and put it into a trust that keeps it away from him past 18.
A gift to minor's trust is not a separate tax paying entity. All income (and deductions) of the trust are reported on the minor's tax return. As for a trust that would have kept property under your control until after the kids turned 18, it could be set up so that income is taxed to the parent, to the child, or to the trust as a separate tax paying entity, depending on your intent and how it is drafted. Stu
The 19yr old can legally spend funds in his/her name as they please & you have no say. That is the primary reason for placing these assets in an entity such as a trust. You will need an attorney to properly draft the trust document. The trust will have to file its own tax return. Tax implications vary, depending on how the trust is structured. Sometimes state issues influence how these entities are structured. ___________________________________
-----> real address on hobokeni or hobokenx
Trust accounts have to file separate tax returns (Form 1041, not 1040). Depeding on the terms of the trust document, the income may be taxable to either the trust or the beneficiary. (The preceding sentence is a gross oversimplification.) The bigger problem is the legal one. *You* cannot move money from a UGMA account to a trust since *you* are not the owner of those funds - the child is. You can, however, direct any future gifts/transfers to the children into a trust. Ira Smilovitz
Keep two things in mind:
There's no use crying over spilled milk (it sounds like it was out of your hands anyway), but this situation is exactly why we plan beforehand, not after-the-fact.
--kastnna
"Learning from the mistakes of others is usually much easier than learning from your own"
First, how do you propose to steal the 19 year old's money? If it's in his name, you can't just change it to a trust. I don't think the deal for the 13 year old is any better. UGMA means the money is his at 18. I am unaware of any legal way to change the titling to restrict access further. I think that ship has sailed. If this was done properly, the money would have gone to the trust instead of to any UGMA. Then, the two trusts would have a tax return if only to document their income which should be passed to the beneficiaries through form K-1. Retaining earnings within the trust can be very expensive, trust's tax brackets are not the same as individuals. JOE
That's usually the case. However in this case if the kids transfer money belonging to them into trusts for themselves, there's probably no gift because you can't make a gift to yourself.
Non-grantor trusts do. Grantor trusts do not. Uniform Gift to Minors Act trusts are grantor trusts and their income is taxable to the minor. Other kinds of irrevocable trusts can also be set up to be grantor trusts, such that their income will be taxed to the child or the parent.
Maybe Steve Jobs' attorney can help him backdate the documents. Stu
I agree.
For the younger son, it's already in a trust, as defined by the Uniform Gifts to Minors Act.
If X transfers to a trust where X is the beneficiary, there's no gift involved. Seth
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