I've read the articles linked above and have a couple of questions.
(1)
So long as beneficiary is under age, the gift is not a contribution to trust corpus and its expiration is a non-event.
Is that the effect of 678(c)? If not, where is that rule? Are you saying that the ownership of trust property and related income tax issues are not a concern until the child is 24 (assuming full time student, dependent of parents?)
(2)
If I understand, the Tax Adviser article says clearly that if the power holder is also the beneficiary, and the power holder allows the withdrawal right to lapse, the power holder/beneficiary continues to be treated as the owner of that portion of the trust after the lapse.
The Hofstra Law article discusses the issue with much less certainty.
I have a family where everyone has trusts. I prepare one of the children's returns. When he turned 35, his trust distributed to him. Until that time, he never received any reporting of any income from this trust. The trust received gifts from parents over the first 35 years.
Until age 23, shouldn't he have reported the income earned on each contribution during the withdrawal period (admittedly, an immaterial amount. I am trying to understand concepts.)
Then from 24 - 35, according to the Tax Advisor, he should have reported income earned on all subsequent gifts to the trust? Let's say maximum gift was $15,000. That's $30,000 per year for 11 years, or $330,000 by the time he turned 35. The earnings on that amount are not insignificant.
The company preparing the trust returns is a well-known, national company that has a large department that specializes in trust management and was the trustee of the trust. Have I misunderstood the concepts or is this an area of law with a low compliance rate?
How do other practitioners handle this situation?