Question

A creates the Smith Family Trust, appointing unrelated party X as trustee. A’s two children, S and D, are income beneficiaries of the trust and A’s grandchildren are the remainder beneficiaries. The trust requires all income to be distributed at least once a year, equally divided between S and D. Neither S nor D are entitled to corpus during their lifetimes.

(a) In 2020, the trust receives $1,000 dividends, $500 interest, and $2,500 capital gains. The trust pays trustee fees of $200. Calculate the taxable income of the trust.

(b) What amounts of cash, if any, should the trust distribute to S & D?

(c) What amounts and character of income pass through to S and D?

(d) Suppose the trust fails to distribute any cash in 2020. Would this change your answers?

Answer 1

a.

Taxable income of the trust
Particulars	Amount
Dividend	$      1,000.00
Interest	$         500.00
Capital gians	$      2,500.00
Less- Fees	$        (200.00)
Taxable income	$      3,800.00

b.

Taxable income of the trust
Particulars	Amount
Dividend	$      1,000.00
Interest	$         500.00
Capital gians	-
Less- Fees	$        (200.00)
Taxable income	$      1,300.00
Distribution to S & D each	650.00

c. non taxable income 650 each

d. trusteee pay tax on income wheather they receive or not