several issues - some tax-related some not
distribution of capital gains
Exception No. 3: Allocated to Corpus but Actually Distributed
Capital gains may also be included in DNI when they are allocated to corpus but actually distributed to the beneficiary or used by the fiduciary in determining the amount that is distributed or required to be distributed to a beneficiary (Regs. Sec. 1.643(a)-3(b)(3)). A fiduciary could distribute capital gains to a beneficiary when relying on this regulation in a couple of different scenarios.
Another consideration when applying exception No. 3 is the ordering rule for capital losses. Generally, any capital losses will first be netted against capital gains at the trust level (Regs. Sec. 1.643(a)-3(d)). Any net remaining capital gains are available for inclusion in DNI. However, netting does not apply when capital gains are distributed under the third exception; rather, the distributed capital gains are taxed to the beneficiary prior to netting. Trusts with capital losses must consider this rule when planning capital gain distributions.
there is the prudent man rule and one would ask if it's prudent to distributed STCG when there is a capital loss carryover
you have a complex trust (capital gains are being distributed at your description). did you distribute cash of $20,000 to the beneficiaries either during 2021 or within 65 days after year-end - IRC 663(b)(2)
the amount distributed to beneficiaries can not exceed the cash/property distributions during this period.
does state law or the trust give you the power to distribute capital gains?
