For three generations, the Dexter family has sent its children to Private University, preparing them for successful professional careers. The Edna Dexter Trust was established in the 1950s by LaKeisha's late grandmother and has accumulated a sizable corpus. It makes distributions to Edna's descendants rarely, and then only when they need large capital amounts. For example, two years ago, the trust distributed $500,000 to DuJuan Dexter to aid him in starting a practice in retirement and elder law. In most years, the trust's income is donated to a single charity.
Under the terms of the trust, Bigby Dexter, LaKeisha's uncle and legal guardian, can specify the trust beneficiaries and the amounts to be distributed to them. He also can replace the trustee and designate the charity that will receive the year's contribution. Accordingly, the trust falls under the grantor trust rules of § 678, and Bigby reports the trust's transactions on his own Form 1040.
LaKeisha wants to attend the prestigious local Academy High School, which will require a four-year expenditure for tuition and fees of $100,000, payable in advance.
She approaches the Edna Dexter trustee and requests a current-year distribution of this amount, payable directly to the Academy. Under the laws of the state, the parent or guardian has the responsibility to provide a child with a public school education (no tuition charge) until age 16.
If the payment to the Academy is made, how is it treated under the Subchapter J rules: as a charitable contribution to the Academy, as a corpus distribution to LaKeisha, or in some other manner?

  • CreatedSeptember 09, 2015
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