Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 02-13-2014, 08:05 PM
Junior Member
 
Join Date: Feb 2014
Posts: 5
Is a gift made from an educational trust on behalf of a student considered income to the student?

My uncle is paying for my children college. He set up an irrevocable spendthrift trust and makes payments from the trust to the university my kids attend.

Is the amount that my uncle pays the university considered income to my children? Do my children have to fill out a tax form to pay tax on it? They are both still in school and neither one of them have jobs.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 02-14-2014, 02:07 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,233
Quote:
Originally Posted by taxboy9317 View Post


#1;My uncle is paying for my children college. He set up an irrevocable spendthrift trust and makes payments from the trust to the university my kids attend.Is the amount that my uncle pays the university considered income to my children?


#2;Do my children have to fill out a tax form to pay tax on it? They are both still in school and neither one of them have jobs.
#1;Correct. Any money received by a beneficiary of the spendthrift irrevocable trust must be declared as income for the year in which it was received. It will be taxed at the recipient's tax rate for that year. it can’ be changed once the trust is established/ or when the grantor, the uncle, dies without attempting to revoke it.A spendthrift trust for another person subjects the beneficiary to income tax only on the portion of income actually distributed to him or her. When the grantor dies/ when the spendthrift dies, no part of the trust is included in the gross estate as it is irrevocable; the assets in the trust pass to the named beneficiaries and become part of their estates.

#2; it depedns. I guess the trustee of the trust needs to generally to file the 1041 or can deduct distributions to the beneficiaries,depending on simple/complex trust. Beneficiaries ‘d receive Sch K1 of 1041 for the distributions from the trust. The amount that is due depends on many different factors, including the amount of money distributed from the trust and the tax filing status of the beneficiaries prior to receiving the funds. Assets placed in a trust are typically able to avoid some kinds of taxes, but income tax will still be due at the time of distribution.Aslong as the beneficiary is claimed on someoneelse’e return, the beneficiary, as a dependent, needs to file his/her return aslongas his unearned income was over $950 or earned income was over $6100 for 2013 I guess. Or gross income was more than larger of $950(unearned income ) or earned income plus $300 up to $6,100



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #3 (permalink)  
Old 02-14-2014, 09:29 AM
Junior Member
 
Join Date: Feb 2014
Posts: 5
Thanks for your answer.

If indeed the money sent to the university must be declared as income by the student, doesnt that really destroy the intent of the trust? The student, is this case my children, didnt do anything to earn this money. It is listed in the trust documents as a gift specifically set aside for education. If I have to turn around now and file tax returns for both my kids and pay tax on these gifts, what is the point of setting up a trust to pay for these expenses? Wouldnt if have been better if a relative just pays cash to the university and didnt set up the trust i the first place?

IRS Publication 970 says that moneys paid to a university by a third party are considered to be paid by the person who claims the student on their tax form as a dependent, which is me their father. I am planning on claiming the 2,500 credit under the american opportunity credit law. Is this correct?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #4 (permalink)  
Old 02-14-2014, 08:51 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,233
Quote:
Originally Posted by taxboy9317 View Post

#1;If indeed the money sent to the university must be declared as income by the student, doesnt that really destroy the intent of the trust?


#2;The student, is this case my children, didnt do anything to earn this money. It is listed in the trust documents as a gift specifically set aside for education. If I have to turn around now and file tax returns for both my kids and pay tax on these gifts, what is the point of setting up a trust to pay for these expenses?


#3;Wouldnt if have been better if a relative just pays cash to the university and didnt set up the trust i the first place?

#4;IRS Publication 970 says that moneys paid to a university by a third party are considered to be paid by the person who claims the student on their tax form as a dependent, which is me their father. I am planning on claiming the 2,500 credit under the american opportunity credit law. Is this correct?
#1;as mentioned previously, aslongas they receive them as gifts, , the donees don’t need to report them as taxable income on their returns ;please read below. However, aslongas the money is distribution for the beneficiary, the student, then as a beneficiary , he/she needs to report it as his/her income on his/her return. Tin general, the trust is taxed on any income earned from investments or other assets, but payments to beneficiaries are deducted as said, depending on if is a simple/ a complex trust. Distributions to beneficiaries in any year are taxed on individual returns on Sch k1s of 1041/1040s as said previously. The amounts are reported along with other income.

#2;As mentioned above;aslongas they are gifts for yur kids, as donees, your kids are not subject to tax on the gifts.

#3;Correct; in this case aslongas the relative pays cash DIRECTLY to te university, then this is not even treated as a gift and the donor does NOT NEED to file Form 709 even if the amount exceeds $14K for 2014 under the special tax law, I guess. then, the recipient, the donee, doesn’t even report the money, actually a gift money for tuition, on his/her return since a done for a gift money is not subject to tax..

#4;In general yes;however, it depends. For example, assume that your child, a dependent, is paying the tuition, you can claim the AOC aslongas you are claiming your child’s exemption. Conversely, if you paid the tuition but your child could not be claimed as a dependent, your child would claim the AOC, not you. Please contact the IRS for more info in detail



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #5 (permalink)  
Old 02-15-2014, 12:14 AM
Junior Member
 
Join Date: Feb 2014
Posts: 5
Thank you very much for the clarification.

My kids have been recipients since August of 2012, and we have never seen a k-1 statement, or anything statement for that matter, stating that they received this money for their education. The only time money is not sent directly to the university is when they buy books, as books cannot be added to the bursar account, they have to be paid for directly. So my kids charge the books on my credit card, then i turn a statement into the trust and the trust cuts a check to us in my childs name.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #6 (permalink)  
Old 02-15-2014, 01:36 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,233
Quote:
Originally Posted by taxboy9317 View Post
Thank you very much for the clarification.

My kids have been recipients since August of 2012, and we have never seen a k-1 statement, or anything statement for that matter, stating that they received this money for their education. The only time money is not sent directly to the university is when they buy books, as books cannot be added to the bursar account, they have to be paid for directly. So my kids charge the books on my credit card, then i turn a statement into the trust and the trust cuts a check to us in my childs name.
I got you;as yo can see, the donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.however, I guess this case is very rare.AOC is a tax credit of up to $2.5K of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit ,up to $1K, is refundable. This means you can get it even if you owe no tax on your return. You cannot claim both the Lifetime Learning Credit and the AOC for the same student in the same year, but you can claim one credit for one student and the other credit for another student.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
are payments made to my daughters college from an educational trust considered "scholarships" taxboy9317 Miscellaneous 1 02-12-2014 10:13 PM
Student slross36 Miscellaneous 1 01-06-2014 07:43 AM
F1 student & income from selling iPhone apps ozery Income 1 03-10-2011 02:17 AM
college student bugs12 Itemized Deductions 1 01-21-2010 10:34 AM
foreign student internship income AuntBeee Income 2 03-08-2009 01:52 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning