Question 1 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 1950’s by LaKeisha’s Late grandmother and has accumulated a sizeable 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 DiJuan 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 treated under the Subchapter J rules: as a charitable contribution to the Academy, as a corpus distribution to LaKeisha, or in some other manner. Question2 In each of the following independent cases, write a memo for the tax research file in preparation for a meeting with Gary. In each memo, explain whether the proposed plan meets his objective of shifting income and avoiding the grantor trust rules. a. Gary transfers property in trust, income payable to Winnie (his wife) for life, reminder to his grandson. Gary’s son is designated as the trustee. b. Gary transfers income-producing assets and a life insurance policy to a trust, life estate to his children, remainder to his grandchildren. The policy is on Winnie’s life, and the trustee (an independent trust company) is instructed to pay the premiums with income from income-producing assets. The trust is designated as the beneficiary of the policy. c. Gary transfers property in trust. The trust income is payable to Gary’s grandchildren, as Winnie sees fit. Winnie and an independent trust company are designated as trustees. d. Gary transfers property in trust, income payable to Winnie (Gary’s ex-wife), remainder to Gary or his estate upon Winnie’s death. The transfer was made in satisfaction of Gary’s alimony obligation to Winnie. An independent trust company is designated as the trustee. Variable Name Data Type Scope fName VarChar(250) Stores the first name of the purchaser. lName VarChar(250) Stores the last name of the purchas ...

1. Question 1
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 1950’s by
LaKeisha’s Late grandmother and has accumulated a sizeable
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 DiJuan 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 treated under the
Subchapter J rules: as a charitable contribution to the Academy,
as a corpus distribution to LaKeisha, or in some other manner.
Question2

2. In each of the following independent cases, write a memo for
the tax research file in preparation for a meeting with Gary. In
each memo, explain whether the proposed plan meets his
objective of shifting income and avoiding the grantor trust
rules.
a. Gary transfers property in trust, income payable to Winnie
(his wife) for life, reminder to his grandson. Gary’s son is
designated as the trustee.
b. Gary transfers income-producing assets and a life insurance
policy to a trust, life estate to his children, remainder to his
grandchildren. The policy is on Winnie’s life, and the trustee
(an independent trust company) is instructed to pay the
premiums with income from income-producing assets. The trust
is designated as the beneficiary of the policy.
c. Gary transfers property in trust. The trust income is payable
to Gary’s grandchildren, as Winnie sees fit. Winnie and an
independent trust company are designated as trustees.
d. Gary transfers property in trust, income payable to Winnie
(Gary’s ex-wife), remainder to Gary or his estate upon Winnie’s
death. The transfer was made in satisfaction of Gary’s alimony
obligation to Winnie. An independent trust company is
designated as the trustee.
Variable Name
Data Type
Scope
fName
VarChar(250)
Stores the first name of the purchaser.
lName
VarChar(250)
Stores the last name of the purchaser.