<wcsnyder[at]attbi.com> wrote:

- quote -

Trust income taxation is not exactly simple. But the basic
rule is any distribution from a trust is treated as first
coming out of the income of the trust and then out of
corpus. So, if the trust had $1,000 of taxable income
during the year, the first $1,000 of anything (income or
corpus) that you distribute to your mother during the year
will be treated as a distribution of income. (This is
technically known as DNI or Distributable Net Income.) Once
all of the taxable income of the trust has been distributed,
additional distributions are treated as coming out of corpus
and are not taxable.

Once upon a time we had a trust concept of accumulated net
income, so that distributions of corpus could result in
taxable income even though they were in excess of the actual
taxable income of the trust for the year. Fortunately, that
concept is no longer with us, so just use the guidelines
above.

For state trust law purposes (and not necessarily for
purposes of taxing the income of the trust), the trust may
provide which law applies. If it does not and if the
trustee, beneficiary and Settlor (your father) were all in
different states, the answer is that you have to look at
what are known as the conflict of law principles of all
three states to determine which state may apply its law. I
suggest that you consult a trust specialist in your state.
The American College of Trust and Estate Counsel
(www.actec.org) certifies trust specialists in all 50 states
and you can find a list of trust specialists in your state
on its website.

Jon Gallo

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"wcsnyder[at]attbi.com" <wcsnyder[at]attbi.com> wrote:

- quote -

Question 2 is legal in nature, and I haven't a clue. As to
question 1 you need to look to the trust document to
determine what income is passed through to the beneficiary.
Typically it is only interest, dividends, and other
"investment" income. Capital gains are taxed within the
trust; in some cases, the fiduciary (that's you) can have a
regular practice of distributing capital gains as well if
the trust document and state law permit, and you are
routinely paying out more than the investment income.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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"wcsnyder[at]attbi.com" <wcsnyder[at]attbi.com> wrote:

- quote -

Not have taxable income. Or have all income be capital
gains. However if you close the trust, it doesn't matter as
all gains will be distributed.

- quote -

You'll have to find that out on your own. There is no one
obvious answer.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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wcsnyder[at]attbi.com wrote:

- quote -

The portion of the trust that was originally donated to the
trust is a gift, not taxable income. If you have been
distributing all the income of the trust to your mother so
that she and not the trust paid taxes, whatever's left can
be distributed tax free.

To the extent the trust paid taxes but did not distribute
income and it instead was added to corpus, I think (but I'm
not sure) that it will also come out free of additional
taxes.

- quote -

I don't know what you mean. Anything for state trust law
purposes would depend on the laws of the state you are in,
which you did not mention.

Stu

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I am the successor trustee of an irrevocable trust. It was
set up by my father and my mom is the beneficiary.

1. How can I distribute the corpus of the trust, if needed,
without it being taxible income to the beneficiary? I.e.
how do I report this on the 1041 and/or the K-1 to my mom.

2. What is the State for State Trust Law purposes? That of
the trustee, the beneficiary, or the source of the original
trust instrument?

Any help or pointers to reference material would be greatly
appreciated.

Will

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