Minors are beneficiaries of an overseas (UK) trust. Tax implications?

[ZDR_ZDR]

I am a US citizen, and I have 2 daughters under age 10 (also US citizens). My parents are UK citizens and live abroad. They are setting up a trust which allows them to gift a certain amount each year to chosen beneficiaries. They are looking into gifting my 2 daughters a certain amount (around $15k) annually, but we are unsure of the tax implications.

Would this count as a gift, and thus untaxed? Or would it count as earned/unearned income, and thus potentially have a tax burden?

[tagteam]

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@ZDR_ZDR wrote:

Would this count as a gift, and thus untaxed?

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It would be a gift and not subject to federal income tax. Under certain circumstances, a Form 3520 might be required to be filed.

See https://www.irs.gov/instructions/i3520#idm139776174455584

[ZDR_ZDR]

Thank you!

Couple of follow up questions here:

1. Since they are minors, if I do need to file Form 3520, do I have to file on their behalf?

2. If the Trust is co-owned (apologies for loose terminology) by both grandparents, is the limit to not having to file double the ~15k? I.e. can they receive that amount from each grandparent, bringing the total to ~30k?

Thanks again!

[tagteam]

1. Yes, you would file on their behalf (as their representative).

2. The annual gift tax exclusion is per person, per donee. So an individual can gift up to $15,000 (during the 2019 tax year) to a specific donee. Thus, two parents (grandparents or whatever) could give up to $30,000 to each of their children (i.e., $15,000 from each parent) without having to file a gift tax return or otherwise pay gift tax on that amount. Note that the gifts should be separate, not commingled.

[ZDR_ZDR]

Thank you!