Complex Trust Distributions

[karlm]

Thank you to everyone who replied to my previous question. My current question pertains to a single beneficiary irrevocable trust. The beneficiary is in a lower tax bracket than the trust and wishes to pay the taxes associated with the trust income on their personal return. I'm wondering if the IRS mandates that the K-1 distribution to a beneficiary must be withdrawn from the trust or if the trustee can choose to leave the K-1 distribution in the trust?

[Anonymous_ · Accepted solution]

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@karlm wrote:

 I'm wondering if the IRS mandates that the K-1 distribution to a beneficiary must be withdrawn from the trust or if the trustee can choose to leave the K-1 distribution in the trust?

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If the terms of the trust provide that all income is to be distributed to the beneficiary currently, then the beneficiary is responsible for paying any tax due on that income whether the income is actually distributed or not (per Section 652).

See https://www.law.cornell.edu/uscode/text/26/652

[Mike9241]

maybe put another way with a complex trust for there to be a distribution of income . money or property must be distributed and the tax laws say this must be done during the year or within 66 days after year-end. 

[Anonymous_]

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@Mike9241 wrote:

for there to be a distribution of income . money or property must be distributed and the tax laws say this must be done during the year or within 66 days after year-end. 

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The income does not have to be actually distributed, it is deemed distributed, for the purposes of federal income taxation, if provided for in the terms of the trust.

Section 652(a):

....the amount of income for the taxable year required to be distributed currently by a trust....shall be included in the gross income of the beneficiaries to whom the income is required to be distributed, whether distributed or not...