@M-MTax @Opus 17 - can we go back with a cleaner example?
Trust generates $10,000 of income; beneficiary of the trust has $10,000 of medical expenses (and for simplicity not reimbursed by insurance).
Under the typical "HEMS" standard imbedded in the trust document, the beneficiary requests that trust reimburse the beneficiary for the medical expenses (the "H" for health in HEMS).
The trust has income of $10,000 but has a distributable net income deduction of $10,000 so it has no taxable income.
The beneficiary receives a K-1 for $10,000 of income (what was distributed), so the beneficiary is paying any tax due on the trust's income.
as the beneficiary paid the medical expenses, to the extent the beneficiary can itemize, this $10,000 (subject to the 7.5% medical exclusion on Sch A.), the $10,000 can be listed on Sch A. It has nothing to do with the trust payment to the beneficiary.
comments? thoughts?
