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Subject Author Date
Do trust accounts require tax returns? Geoff 08-30-2007
Posted by Geoff on August 30, 2007, 5:07 am
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 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?

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Posted by Phil Marti on August 30, 2007, 11:20 pm
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> 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.

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.

> What are the tax implications?

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.

> Do the trust and the
> individual file separate tax returns, or are they
> consolidated?

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

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Seth on September 1, 2007, 12:07 am
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>> 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.

> Recommended by whom? Sounds like one of the worst ideas
> I've seen come down the pike in a while.

I agree.

> 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.

For the younger son, it's already in a trust, as defined by
the <state> Uniform Gifts to Minors Act.

>> What are the tax implications?

> The transfer to the trust is a gift.

If X transfers to a trust where X is the beneficiary,
there's no gift involved.

Seth

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Benjamin Yazersky CPA on August 30, 2007, 11:20 pm
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> 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?

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.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Ira Smilovitz on August 30, 2007, 11:20 pm
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> 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?

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

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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