Can an Irrevocable Trust be Simple one tax year and Complex in another tax year?

[trust812]

I think so.

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Definition of a simple trust

There are three basic characteristics that define a simple trust:

1) The trust must annually distribute to the beneficiaries any income it earns on trust assets.

2) The trust cannot distribute the principal of the trust.

3) The trust cannot make distributions to charitable organizations.

When this type of trust is used, the trust income is taxable income for the beneficiaries, even if they don't withdraw the income from the trust. Capital gains taxes are applied to the trust itself.

Definition of a complex trust

A complex trust is essentially the opposite of a simple trust. To be classified as a complex trust, it must do at least one of three activities within the year:

1) The trust must retain some of its income and not distribute all of it to beneficiaries.

2) The trust must distribute some or all of the principal to the beneficiaries.

3) The trust must distribute some funds to charitable organizations.”

[M-MTax · Accepted solution]

A complex trust is any trust other than a simple trust. A complex trust can also distribute income (some or all) to its beneficiaries and that is dependent upon the terms of the trust. A complex trust is NOT required, by IRS rule or regulation, to retain some of its income.

Ref Section 651 

Note also that trusts that are required to distribute all of their income currently are allowed a deduction of $300 while all others are allowed a deduction of $100.

Ref Section 642 

Regardless, you are correct in the sense that a trust can be a simple trust in one tax year and complex in another.

[trust812]

Thanks!