Learn About Your Giftrust*
A Giftrust is an irrevocable trust that was set up (by a grantor) to be a one-time gift to another person (the beneficiary). The trust has a maturity date, which is when control of the money will transfer to the beneficiary. Grantor's choose the maturity date at the time the trust is established. Review the Giftrust stages to understand what's happening with the account now and what will happen when it matures.
Your Giftrust Before Maturity
A Giftrust uses an Employer Identification Number (EIN)—not a Social Security number (SSN)—for tax reporting.
American Century files taxes under the trust EIN prior to maturity.
The trust is invested in the All Cap Growth Fund, which merged with the Growth Fund on February 21, 2020.
The grantor, the beneficiary and/or the beneficiary's parent (if the beneficiary is a minor) can receive account information during the life of the Giftrust.
At the maturity date the assets will transfer to an account under the beneficiary's name and SSN. See Near Maturity for important steps that will be necessary at that time.
Can I Access the Funds Before the Giftrust Matures?
As an irrevocable trust, a Giftrust can only be terminated early with written consent of the grantor, beneficiary and any alternate beneficiaries using the Giftrust Early Termination Form. Terminating the trust moves the maturity date up to the date American Century receives the request. If all parties are not able to consent, the trust cannot be terminated.
Contact an Investment Specialist at 1-800-345-2021.
Several weeks before the Giftrust matures, we will mail a notice to the address of record that the trust will soon mature and be transferred to an Individual taxable account in the beneficiary's name and Social Security number (SSN). Because the beneficiary will be the only person able to manage the account, and be responsible for taxes, he or she will need to take appropriate action below.
Required Action—Don't Wait
Certify your Social Security number. If the SSN is not certified, the IRS assumes the beneficiary is subject to backup withholding and requires us to withhold a mandatory 24 percent of distributions and withdrawals. In some states, you also may be subject to state backup withholding. Any amounts withheld are remitted to the IRS on your behalf as a credit towards your income tax liability that year.
Consider Investing Options
Now may be a good time to consider the investment options as the trust nears maturity. Those include leaving shares in the All Cap Growth Fund, exchanging into another American Century Investments fund, or redeeming some or all shares. Make sure to read about the tax responsibility before deciding to redeem.
On the maturity date the following changes occur to the Giftrust account:
Trust transfer: Shares are moved into an Individual Account in the beneficiary's name and Social Security number, still in the All Cap Growth Fund.
Account access: Only the beneficiary can receive information about the account. The grantor, or parents no longer have access.
Account management: The beneficiary can now decide how to manage the account and make transactions.
Reinvested dividends: Dividends or capital gains are automatically reinvested back into the account unless requested otherwise.
Tax responsibility: The beneficiary is now responsible for filing taxes in any year a redemption or distribution occurs.
Easy to Manage
Now that the account has matured, make it easy to manage by registering for online access. Transactions that can be made online include:
Make additional investments.
Exchange into a new fund.
Redeem funds from the account.
The Beneficiary is Responsible for Taxes After the Giftrust Matures
Transaction activity on a matured Giftrust account (now a Growth account)—such as a distribution, an exchange or a redemption—means taxes may be owed.
The beneficiary will be required to file a tax return if the fund pays distributions or a redemption is made.
The tax amount will be based on your tax bracket that year.
You will need to report your cost basis (how much was paid for the shares) and taxable gains to the IRS when filing your tax return.
Calculating Cost Basis/Taxable Gains
If a beneficiary makes a redemption on a matured Giftrust account, he or she may have to calculate their own cost basis, depending on the year it matured. Taxable gains must also be calculated.
Giftrust matures in 2011 and after: If the beneficiary redeems shares, American Century will calculate cost basis. Find the information by logging in to My Account or register for online account access. Or, contact an Investment Specialist. Cost basis will be reflected on tax form 1099-B for the All Cap Growth Fund.
Giftrust matured prior to 2011: If the beneficiary redeems shares, he or she will need to calculate the cost basis. This requires the full account history (non-matured Giftrust and matured account). Find the history by logging in to My Account or register for online account access. Or, you can contact us. The Tax Filing Requirements flyer can help with calculating cost basis.
COST BASIS = Initial and all Subsequent Investments + Dividends/Capital Gains Over the Life of the Account
TAXABLE GAINS = Cost Basis - Redemption Amount
Tax Filing Forms You Will Receive
Schedule K-1: This one-time statement reports the beneficiary's share of the trust's income or loss, deductions or credits for the year that the Giftrust matures. According to tax regulations, we send the form in March the year after the maturity year.
1099 Forms: The beneficiary will receive a 1099-DIV to report dividends or capital gains, or a 1099-B for exchanges or redemptions. This form will only be generated if one of these activities occurs.
Backup Withholding - Why Certifying Matters
The IRS requires the beneficiary to certify their Social Security number (SSN) when the Giftrust matures. If the SSN is not certified, the IRS assumes the beneficiary is subject to backup withholding, and requires us to withhold a mandatory 24 percent from all distributions and redemptions. Any amounts withheld are remitted to the IRS on your behalf as a credit towards your income tax liability for that year. This can easily be avoided by certifying the SSN at maturity.
SSN Not Certified? Penalties Will Show on Your Statement
If the statement indicates tax withholding, it means distributions or redemptions occurred prior to the SSN certification, and that we fulfilled the IRS imposed withholding for the mandatory 24 percent. Withholding will also be reflected on the 1099-DIV or 1099-B for that year.
As of June 2017, new Giftrust accounts are no longer available.
This information is for educational purposes only and is not intended as a personalized recommendation or fiduciary advice. There are different options available for your retirement plan investments. You should consider all options before making a decision. Our representatives can help you evaluate all of your distribution options.