Benjamin and Sarah would also like to provide financial assistance to their 3 children, Scott, Janice and Carly while they attend college. They have decided to provide each child $15,000 (in todays dollars) per year for tuition, room, and board. Any additional funding will be provided by the trust, student loans, and part-time employment by the children. Today, tuition, fees, and other associated costs average $25,000 for a public university and are expected to increase at a rate of 5% per year. Each child is expected to begin college immediately after graduation from high school at age 18 and attend for four years.

In addition, the Childrens grandparents set up a $100,000 trust fund to assist their grandchildren with college education expenses. Sarah, the beneficiary of the trust fund, receives the monthly interest from the principal until the trust is dissolved, with first Benjamin and then Childrens Hospital as successor beneficiaries in the event of Sarahs death. Upon Scotts enrollment in college, he will be given his third of the trust fund, $33,333. Sarah will continue to receive the interest on the remaining $66,666 until Janice and Carly begin college. If a child should die or decide not to go to college by age 22, that childs share would be donated to Childrens Hospital.

a. What, if any, are the tax consequences to the Reddings of the tuition discount the first year that all three children are in school?