Given the following:
•basic complex trust (deceased), single beneficiary
•successor trustee established a new trust account with new Tax TIN
•trust allows trustee full control (no constraints on distributions or taxes)
•trust has 2021 (post death) deposit of $100K ($90K principal, $10K interest income)
•therefore trust received a 2021 1099-INT for the $10K
•deceased residence and state of new trust acct is FL
Can the Trustee distribute $7K of taxable interest to the beneficiary, and keep the remaining $3K taxable interest for the trust to pay in 2021 (note trust tax rate of 10% on first $2650)?
Can the Trustee distribute $97K ($90K principal + $7K taxable interest) to the beneficiary, and designate/keep the remaining $3K as taxable interest for the trust to pay in 2021?
Can either or both the deposit to the new trust account and/or the disbursement to the beneficiary occur in the 65-day rule window (Jan 1 - Mar 7, 2022) to apply for 2021 tax year?
If the trust grants you, as trustee, the discretion to do so, then you can distribute assets accordingly, including making a Section 663(b) election.
However, I would question the "2021 (post death) deposit of $100K". What is the source of this deposit?
for a complex trust where income distribution is discretionary, the income must be distributed by 65 days after the end of the tax year (IRC 663(b)(2) for which the distribution is intended.
There will actually be multiple deposits (was trying to keep question simple). One deposit with 20211099 is a final fiduciary from the deceased original trust (utilizing the 65 day rule) covering the post death to distribution (expected in Feb 2022) timeframe. Other deposits (early 2022 deposits) are from Life insurance claims with added interest income post death date (not sure if they will produce 2021 or 2022 1099's yet).
If the deposited trust, with 1099 provided for 2021 includes a LT Cap Gain loss, can the trustee flow that loss to the beneficiary to utilize it?
Typically, the trustee needs discretion to distribute capital gains (they normally remain with trust as corpus (principal)).
In the interim, capital losses are used to offset capital gains, but a net capital loss is not passed through to the beneficiaries until the trust is terminated and a final return is filed.