Carol has been promoted several times, and she may be named a partner in her consulting firm next year. Thus, she will be subject to higher marginal income tax rates than in the past. Carol's colleague Isaiah has told her about a "college education trust" from which he pays tuition and fees for his children. He has implied that there are sizable tax advantages to setting up a trust for this purpose. Now Carol is considering establishing a similar trust to pay tuition for her own children. She believes that the trust will be able to deduct the tuition payments, something that she cannot currently do on her Form 1040. Complete the memo to the tax research file addressing Carol's ideas and recommending a tax-effective course of action.

TAX FILE MEMORANDUM
Date:	November 4, 2020
From:	Reed Rawlings
Subject:	Grantor trust rules
Carol's ideas are ___ to the tax law. College tuition payments generally are ___ personal expenditures [ 262(a)].
By using a trust as a fiduciary entity in this plan, Carol also brings into play the grantor trust rules of 671 679. Where the grantor the right to make investment and distribution decisions, the trust is ignored for tax purposes. Thus, trust income and deductions are attributed ___5 to Carol, the owner of the trust assets.
The donor ___ retain the following powers without making the entity a grantor trust. Allocate items between entity accounting income and corpus. Choose charitable beneficiaries. Invade corpus for the benefit of a beneficiary. Withhold income from a beneficiary during the beneficiary's disability or minority.
But if the grantor uses the income of the trust to satisfy his or her legal obligations, the ___ rules apply. If the tuition payments are one of Carol's legal obligations, she ___ taxed on trust income used for this purpose. The entity itself ___ deduct such payments.
Under these circumstances, there ___ income tax benefit to establishing such a trust. But the nontax reasons for using a fiduciary might be valuable to Carol anyway.