Long Term Capital Gains

[TwinJud]

How do I determine what portion of Long Term Gains is Allocable to the beneficiaries ?

[tagteam]

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@TwinJud wrote:

How do I determine what portion of Long Term Gains is Allocable to the beneficiaries ?

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Do you, as trustee I presume, even have the authority to distribute capital gains to the beneficiaries?

You have to read the trust instrument as it will be specified (or not) in that document.

[NCperson]

what tax form are you trying to fill out? Form 1040 or Form 1041

normally in a trust, if you distribute money, it's the interest and dividends that are distrributed; the capital gains remains in the trust and is taxed their.

example:  in 2019, trust have $20,000 of dividends and interest, $10,000 of capital gains and distributes $30,000 to the beneficiaries.  

The $20,000 ends up on the K-1 and is ultimately reported by the beneficiaries as income, even though they received $30,000.  The remaining $10,000 is reported as capital gains by the Trust and it pays taxes on the $10,000 at the capital gains rate.  

[TwinJud]

We're trying to fill out Form 1041.

In this case, the entire Trust is only about $35,000.   

So we're talking about dividends, Interest, and Cap gains only in the hundreds of Dollars.

And the beneficiary asks for, and is usually paid, about ~$500. to ~$3000. in any one year, depending on what she requests. 

The articles of the Trust do not specify a certain amount of payout per year.

The Intuit TurboTax form question  seems to ask an open ended question, i.e. that we could put Any amount  in the form as a distribution.  Is there any guideline or IRS instruction on this?

Thank you for your expertise.

[NCperson]

that is correct - put whatever was distributed on  the 1041.

but what is going to occur is that the dividends and interest will end up on the K-1 and the capital gains will remain on the 1041. 

[tagteam]

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@TwinJud wrote:

The articles of the Trust do not specify a certain amount of payout per year.

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Treas. Reg. §1.643(a)-3(b) permits the inclusion of capital gains in DNI (distributable net income) provided it is made expressly permissible by the trust instrument or the inclusion is a reasonable and impartial exercise of discretion by the trustee that is authorized by the trust instrument.

Essentially, you follow the guidelines set forth in the trust instrument and any applicable local law.

[TwinJud]

Thank you for the guidance.....

[TwinJud]

...all kind of help, from these experts !

Thanks for sharing !!!