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Stanford University Legal Obligation of Support Discussion Posts

For three generations, the Jordan family has sent its children to Harvard University, preparing them for successful professional careers. The Janice Jordan Trust was established in the 1950s by Taneisha’s late grandmother and has accumulated a sizable corpus. It makes distributions to Janice’s descendants rarely, and then only when they need large capital amounts. For example, two years ago, the trust distributed $450,000 to Lester Jordan 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, Ryan Jordan, Taneisha’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, and Ryan reports the trust’s transactions on his own Form 1040.

Taneisha wants to attend a prestigious local academy, which will require a four-year expenditure for tuition and fees of $125,000, payable in advance. She approaches the Jordan 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 must 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 Taneisha, or in some other manner? Be specific. Explain your conclusions, and support with references from the text, and/or other related tax code, regulations, etc. 

Do the discussion first then response each posted down below.

Posted 1

The lump-sum payment of $125,000 made to Taneisha’s school was not a charitable contribution.  Ryan is in charge of the trust and is also Taneisha’s legal guardian and is responsible for her care.  The question is is Ryan legally responsible to pay for a private school tuition.  Taneisha requested a distribution from the trust to pay the tuition so it is a corpus distribution to Ryan since he is her guardian.  It is a simple trust and the income distribution was to Ryan for Taneisha.  Since Ryan is the grantor he will not be taxed on the distribution that is going toward the support of a dependent.  

Cenage, 2021, Chapter 9:Taxation of Estates and Trusts

Posted 2

Hello Everyone,
The scenario states that Ryan Jordan is Taneisha’s uncle and legal guardian which leads me to believe that she is a minor even though that is not stated. It also explains that the trust falls under grantor trust rules and Ryan reports the transactions of the trust on his own 1040 income tax return. Under grantor trust rules, Ryan is obligated to support Taneisha since he is her legal guardian (Raabe et al., 2022). The question here is whether her attending the local academy, a private school, will constitute as support. It was found in Stone v. Commissioner that the expenses paid by the trust for the private school education of the petitioners’ children was distributed for the support or maintenance of a beneficiary (1987). It was also found in Braun v. Commissioner that the money from the trust used to pay for tuition, room, and board for 4 of the 6 beneficiaries was Dr. Braun’s legal support obligations and are therefore taxable to him under section 677(b).
Under subchapter J this would not be considered a charitable contribution to the academy or a corpus distribution to Taneisha. This would be considered as the discharging of Ryan Jordan from his support obligation to Taneisha and the $125,000 would be taxed to Ryan.
Thanks,
Juanita

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