Legal Question in Wills and Trusts in New Jersey
My 14 year old son has a trust fund set up by his grandparents - my ex-in-laws. The trust is set up with stock from TD Bank. TD Bank was previously Commerce Bank and was purchased about 2 years ago. The trust was started when my son was born. My father-in-law is now asking for my social security number because he says taxes are due, from the trust, and the "percentage" is based on the "percentage" of tax I pay. He says that when TD purchased Commerce the stock had to be sold and then re-bought under TD bank. The previous years, the tax had been paid out of the trust. I am custodial parent with joint custody. He says this won't effect my taxes in any way. What do I do?
2 Answers from Attorneys
Your father-in-law is correct. Your son pays taxes on unearned income based upon your tax rate since he is under 18. You should provide the information so the correct trust tax return, 1041, and your son's 1040 can be prepared. You are certainly lucky that your son's grandparents were wise enough to set-up a Trust for his education!
I hope this helps!
Ron Cappuccio
856 665-2121
http://www.SaveYourEstate.com
I agree, but also question some information. How much income is taxable, as a certain amount of unearned income (interest, dividends, capital gains, etc.) can be taxed at a child's rate and only the excess at the parent's rate KJIDDY TAX RULES). Additionally, the trust can pay some taxes at its own rate. Also, depending upon whether the dividends are qualified or not, and if the gain on the sale of stock was long-term or short-term all impact the tax consequences and the rate. Finally, who is going to pay the taxes, wherever they fall, Form 1041 for the trust (presumptiverly paid by the trust) or your son on Form 1040? An accountant or tax attorney should review all options and select the one producing the lowest tax. Not having seen the trust document, I do not know what options are available, but doing many trust tax returns, I can suggest alternatives.
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