There's still something I don't understand about what you're saying. Per the trust, I may pay out income to the beneficiary but do not have to and can pay out any amount. Why can the taxable income in the trust ($41,000 in my example) not be reduced by the loss carryover first and the remainder paid to the beneficiary? I'm not suggesting I pass the loss onto the beneficiary. Looking at my example, I'm suggesting I pay out $38,000 to the beneficiary (who will pay the tax on it), leaving no taxable income in the trust, as it was reduced by the loss carryover. What is the problem with this scenario?
