jtax
Level 10

Investors & landlords

Sorry but that is boilerplate that does not help answer your original question. 

 

A critical concept is that trust accounting "income" has NOTHING to do with tax income. They are different things (with overlap).

 

What all the clauses you are quoting are about is trust principal and income accounting. In the old days most trusts had "current" or "income" beneficiaries and "remainder" beneficiaries. The current benes got things like interest and dividends, while the remaindermen got capital gains and whatever principal was left at the end (usually when the current benes died, but could also be a term of years or until a bene reached a certain age or whatever).

 

A ton of rules when into determining whether each and every item of income or expense was income or principal. Why? Because the benes would be different and the determination was critical to got what. 

 

Those rules still exist and you may have to deal with them when you (or your professional) does your annual trust accounting to the beneficiaries.  However most modern trusts work differently in part because modern portfolio theory (and company practice) lowers dividend payments in favor of appreciation. 

 

There are many ways to deal with that. There are "unitrusts" that distribute a certain % of trust assets to the current benes. Doesn't matter if there is income or not. Then there are discretionary trusts where the trustee has discretion to distribute or not. There also are ascertainable standard trusts where the trustee may (or must) make distributions for beneficiary's health, education, maintenance, and/or support (typically at the level of spending the bene was used to before the trust). They are ascertainable because a judge can review the distributions and the bene's financial records and determine if the distributions were too much or too little.

 

So you are looking for a clause that isn't in the general boilerplate trustee powers section. They could be something like this:

 

Section 5: Distributions during Joe's lifetime:

 

The Trustees may in their uncontrolled discretion at any time or times and for any reason pay any part or all of the net income and/or principal of the trust to any one or more of Joe, his wife, or his issue, whenever born, payments to more than one person to be made in such proportions among them as the Trustees see fit. 

 

or 

 

The Trustees shall pay all of the net income of trust trust to Hank.

 

Income might be defined. If not you look to the state act to tell you what income is. If you don't like that you have the power (you quoted) to adjusted as long as you are exercising your discretion with your fiduciary duty to all of the beneficiaries (current, remainder, contingent, unborn, etc.)

 

You are looking for something that allows (or requires) you as trustee to take money out of the trust and give it to benes. It is a bit complicated but to oversimplify if such distributions are not one or two time things (or charitable donations) but are recurring, for income tax purposes they will be considered to "carry out" trust taxable income to the benes. That is what you, quite reasonably, are trying to do. The trust gets a deduction on its 1041 for the income distributed  ("DNI") and the benes gets a k-1 showing the income, which they report on their 1040s.

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