3.5 Gifts for the Benefit of Children

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

3.5 Gifts for the Benefit of Children

The "kiddie tax" creates some difficulty in transferring assets to an individual's children to create an educational fund for their benefit. This was often done in the past because the children's income tax bracket was usually lower than the parent's, thus allowing a larger after-tax fund to build up over the years. This was particularly good planning for establishing educational funds for the donor's children. The current income tax rules are somewhat complicated and provide that most net unearned income (investment income) of a child who (1) has not attained the age of 19 before the end of the tax year, (2) is a full-time student under the age of 24 at the end of the tax year, and (3) has at least one parent alive at the close of the tax year will be taxed at the trusts and estates income...