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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7147
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My parents set up an irrevocable trust for my son at least

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My parents set up an irrevocable trust for my son at least 10 years ago, with a goal of paying for part of his college education. The trust consists of stock purchased by my parents in the electric utility company my father worked for, and all dividends were reinvested in additional stock purchases. We were able to fund his first three years of college from our own savings for this purpose, but needed to take a withdrawal of 200 shares of the trust (approximately 40% of the total trust) in the amount of just over $10737.40 dollars for his senior year. I do not have any more information about the trust, and would like to know what taxes my son (the beneficiary) might need to pay. He has less than $2000 of income this year from work-study, and it seems likely that he would pay the lowest rates over all. He is our dependent, and we have been taking advantage of the tax benefits for college education on our tax forms. I may be able to get more information on the trust from my parents, but they are both over 80 now, and their answers are not always clear. How do I figure this out?
Submitted: 6 years ago.
Category: Tax
Expert:  Stephen G. replied 6 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

Chances are, since the trust is irrevocable, it may have been required to file income tax returns in the past. Who are the trustees? Was the stock sold & then the proceeds distributed to your son? Or was the stock actually distributed to him & then sold? It will be necessary to determine the original number of shares contributed to the trust and their cost when your parents purchased them or the number originally purchased by the trust and their acquisition cost; as well as the cost of the shares purchased through the reinvested dividends in order to determine the adjusted cost basis for determining gain or loss. The dividend reinvestment statements will have the latter and your father's old company should have information as to his stock purchases if made as part of an employee stock purchase plan. If he purchased them through a broker or a bank, then that company should have similar records.

Stephen E. Grizey :

I suggest that you might consider getting some professional help, possibly from a local CPA, to make these computations and /or estimates with/for you, if you aren't familiar with these issues, as we have several different sources of data, that we use to obtain reasonable estimates if the actual records are not available.

Stephen E. Grizey :

It is really beyond the scope of what we can do here in terms of trying to give you specific details as we would need a lot more back & forth in order to determine the specific facts.

Expert:  Stephen G. replied 6 years ago.

Please remember to click on the Green "ACCEPT" "ICON" & thanks again for using our service.
Customer: replied 6 years ago.
Thanks for your help. I thought it might be very complicated. It sounds like the best option is to contact American Stock Transfer and Trust company (who issued the check to my son after the sale of 200 shares). They should have all of the information on the original setup of the trust and the number of shares and purchase price for each round of dividend stock purchases. Do you agree?
Expert:  Stephen G. replied 6 years ago.
I'm afraid that will only be part of the solution & I'm not sure what that company's role was in terms of the irrevocable trust. You still need to know what to do with the information & someone needs to analyze what has been done tax wise, what needs to be done, and then put together whatever filings are necessary and/or determine an alternative practical solution. In order to do that, in my opinion you will need some level of professional assistance. I can only give you my best recommendation based upon the limited information we have available. Unfortunately, it may not be as simple as simply reporting a capital gain (or loss) on your son's 2010 income tax return.
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