The only difference between a Simple Trust and a Complex
Trust is a $300 Exemption versus a $100 exemption. If the
trust retains income to be taxed ( that is, it doesn't
distribute it all) it is not a Simple Trust that year
regardless of whether it otherwise qualifies or not. The
trust's income includes "all income" from whereever. If the
trust retains income and pays the tax on it, it becomes
corpus of the Trust. If it distributes the income, whether
in cash or just on the books, to a beneficiary to be taxed
it is never taxed twice so effecetively it becomes the
benefiaries' capital AS THOUGH it was distributed to the
beneficiaries. If you don't distribute it all you lose the
$300 exemption and instead only get a $100 Exemption and
what you don't distrtibute is taxed to the Trust.

I hope that answers your question, but essentially the first
part of your last paragraph is wrong, but the last part of
it is correct, but is not the intent of a Simple Trust.

ed

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

- quote -

It depends on what the trust says.

If there is no direction in the trust, the general rule is
that an inheritance legally passes on the date of death
subject to administration. Meaning that any income earned
by the estate or trust is income which should be distributed
to the beneficiaries, if the trust requires it.

- quote -

No.

Stu

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A beneficiary of an estate dies and a testamentary trust is
created, to which the estate assets pass. In the estate's
final tax year, there is some interest and dividend income
to the estate, which in turn passes that along to the trust,
& files a K-1 form to that effect. Since it is the final
year of the estate, the income is taxable to the heir
(trust), and not the estate.

Does the simple trust regard this transferred dividend and
interest amount as "income" that must be distributed to the
beneficiary of the trust, or does the transferred money
become part of the capital assets of the estate?

In other words, am I correct in thinking that the terms of a
simple trust only require transfer of income to the
beneficiary when that income is generated by the assets of
the trust, and even though the donor estate generated
'income', upon transfer, the trust regards that income as a
trust capital asset, even though it must pay the tax on that
income?

<< ================================================== ===== > << 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 (2006) - All rights reserved. > << ================================================== ===== >