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CGCPA
CGCPA, CPA
Category: Tax
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Experience:  over 40 years experience in tax matters
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A childrens investment trust is established for 2 minors.

Customer Question

A children's investment trust is established for 2 minors. When the children reach the age of majority, the mutual funds owned by the trust are to be distributed to them. Do the children pay income tax when they ultimately sell these funds & is their basis the original purchase price paid by the trust or the share price of each fund upon distribution?
Submitted: 1 year ago.
Category: Tax
Expert:  CGCPA replied 1 year ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

Since in most trust setups the income earned is taxable (even though it is reinvested as it is received) every year as received the basis will be the sum of the original investment plus all reinvested earnings (interest and dividends being the most common). Any additional gain due to market value changes will therefore determine the gain to be recognized when the final distributions are made. In simple terms the basis will be the total of the original investment plus earnings. This is then deducted from the redemption receipts to determine gain. Additionally, depending on the trust's earnings the children may not actually need to file returns or pay tax every year. If the income is less than $500 per year (current rules) they are not required to file.

Expert:  CGCPA replied 1 year ago.

Now that you have had time to digest the information I provided to you I would like to ask if you need additional assistance. If you do, please feel free to ask. I will be happy to provide further assistance/clarification for anything you are still concerned about.

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