Income in a trust is NEVER taxed twice. Whatever is
distribute, or just allocated, to a beneficiary is a
deduction for the trust. There is a 65 day provision
allowing for payment until about March 15 of income earned
in the prior year and even that could just be the
"allocation" of the income, which is left in the trust to be
distributed later.

In a trust, all distributions, or allocations, are first
allocated to income, and then to principle, and any income
not actually paid to the beneficiaries in one year are
considered paid out of the first distributions in the
following year. In other words, your actual checks in 2005
may represent some income from 2004 and even 2006, however,
2006 income would be allocated to a principle withdrawal in
2005 and then reallocated to income in 2006. It's actually
much simpler than that when you understand the cash-flow
versus income deductions by the trust--they rarely match
exactly. The check you wrote in late 2005 actually prepaid
some income for 2006. Usually you underpay at year end so
part of the February 2006 check covers the final portion of
2005 income.

ed

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"tobe" <ybotkaSPM[at]cinci.rr.com> wrote:

- quote -

Does the trust require all trust income be distributed to
the beneficiary? If not, the trust is taxed separately from
the beneficiary. The trust will recognize taxable income in
2005 and a deduction in 2006.

However if the trust is required by its terms to distribute
income to the benficiary, the trust is not separately taxed.
The beneficiary is considered as having earned income when
received by the trust.

So even though the beneficiary wouldn't actually receive the
income until 2006, he would be the deemed recipient in 2005,
and taxed on it in that year.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

A testamentary trust consists of stocks and mutual funds.
Dividends and interest from these are transferred, by the
terms of the trust, to a beneficiary. One of the several
brokerages holding the trust investments is incapable of
making this income transfer automatically to the
beneficiary, and must do a manual transfer. An account
in this latter brokerage credited interest income to the
trust after business hours on 12/30, a Friday. There is
no way to manually transfer this income to the beneficiary
before 2006.

Questions:

Does the trust have to include this as income on its own
tax form and pay tax on this income (which otherwise would
have been timely transferred to the beneficiary, who would
have paid the income tax)?

If so, how is the eventual transfer of this income to the
beneficiary in 2006 handled (paperwork, for the beneficiary's
2006 taxes) as to avoid re-taxation of this income in 2006?

Thanks in advance for your expert opinions.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >