How do I indicate distribution status for income/capital gains to beneficiaries on Form 1041?

[grapegrower]

There is a complex trust (original grantor passed away in 2023) that received income in 2023 from interest/dividends and capital gains. Most, but not all, of the trust assets were distributed to the beneficiaries during 2023. The interest and capital gains have not been distributed yet (are still in trust). How should this be indicated on Form 1041 or related schedules?

[Mike9241]

with a complex trust, income must be distributed during the year or within 66 days after year end as required by IRC 663(b(). there is also the question as to whether the trust agreement allows distribution of capital gains. 

To make the section 663(b) election to treat any amount paid
or credited to a beneficiary within 65 days following the close
of the tax year as being paid or credited on the last day of
that tax year, check the box. This election can be made by
the fiduciary of a complex trust or the executor of a
decedent's estate. For the election to be valid, you must file
Form 1041 by the due date (including extensions). Once
made, the election is irrevocable.

[tagteam]

I concur with @Mike9241's post. 

However, what did you distribute, exactly? Distributions of cash, for example, typically carry out DNI to the beneficiaries.

[grapegrower]

Mutual funds, stocks ... no cash yet.

[grapegrower]

Maybe I am misunderstanding something fundamental. The mutual funds were distributed "as is" between the beneficiaries (not liquidated). No income from those distributions which they under the trust EIN. How do they need to be reported or do they?

[tagteam]

Then the trust will assume any tax liability since some of the assets (the mutual funds) were distributed in kind to the beneficiaries? Is there an issue with that result?

[grapegrower]

Not sure I follow. I didn't think there was any current tax liability for the mutual funds, at least for the trust, since no interest/dividends were made on them while the trust held them (this year).

The trust only held them for a few months (prior to that it was a living trust but grantor passed away in 2023).

[tagteam]

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@grapegrower wrote:

The trust only held them for a few months (prior to that it was a living trust but grantor passed away in 2023).

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In that case, I must have misread your initial question or else I assumed the trust had interest and/or dividends.

Therefore, if the trust is distributing the assets in kind, and has no income or gain, a 1041 probably does not need to be filed.

[grapegrower]

Sorry if my reply/initial question was confusing. The trust contained mutual funds, stock, cash and property. There was also property in the trust but it was transferred to a beneficiary (deed to property transferred, not sold).

[tagteam]

So, what is the upshot here? Will the trust pay any income tax due?

You're past the 65-day period mentioned by Mike9241.