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USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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This is a tax question. I am considering putting some money

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This is a tax question. I am considering putting some money into an account for my newly born granddaughter. I would like to minimize the tax liability on this. What would be the best way to do this? I am looking at a trust fund, but it's been a while since I've considered doing this.

USTaxAdvising :

Hello, Thank you for using justanswer. I can assist you with your questions today.

USTaxAdvising :

Generally speaking the a trust fund with your granddaughter as the beneficiary would be the most efficient from a U.S. federal income tax perspective.

USTaxAdvising :

Basically you would want to keep the account out of your name (and her parents name) so that you are not taxed on the income the account generates. Since you granddaughter most likely won't be working for a while and won't earn enough income to meet the filing requirements for her own personal tax return there would be no tax due on the income earned. That is assuming her total investment income does not exceed $1,900.

USTaxAdvising :

If her total investment income exceeds $1,900 then there is a good chance the income would be taxed at her parents marginal tax rates. This is known as the kiddie tax. See link here for more information on the kiddie tax - http://www.irs.gov/taxtopics/tc553.html

USTaxAdvising :

In practice this is generally the best method of saving for children and grand children from an income tax perspective. (i.e. the trust account with the child as the beneficiary who has access to the funds at a certain age)

USTaxAdvising :

I hope this answers your questions. If not please let me know where I can assist further.

USTaxAdvising :

Best regards,

Customer:

Got it!! Thanks

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