Discussion:Basic simple trust question

it was a forced sale as a tender offer so i was not sure if that mattered?

The tax law originally was the capital gains of a trust were taxed to the trust (assuming a simple trust). Then it was changed - about 8 years ago +/- where the beneficiary was taxed on the capital gain income and considered part of the DNI.

I think trust was formed in 1992 and the person named in the trust died in 2002. It is a simple residuary trust if that helps?

and So i need to see a copy of all legal documents for formation of these trusts-right?

What is the basis date for stocks sold? 1992? 2002? or when assets originally purchased? thanks again.

thanks

(b) Capital gains included in distributable net income. Gains from the sale or exchange of capital assets are included in distributable net income to the extent they are, pursuant to the terms of the governing instrument and applicable local law, or pursuant to a reasonable and impartial exercise of discretion by the fiduciary (in accordance with a power granted to the fiduciary by applicable local law or by the governing instrument if not prohibited by applicable local law)—

(1) Allocated to income (but if income under the state statute is defined as, or consists of, a unitrust amount, a discretionary power to allocate gains to income must also be exercised consistently and the amount so allocated may not be greater than the excess of the unitrust amount over the amount of distributable net income determined without regard to this subparagraph §1.643(a)-3(b));

(2) Allocated to corpus but treated consistently by the fiduciary on the trust's books, records, and tax returns as part of a distribution to a beneficiary; or

(3) Allocated to corpus but actually distributed to the beneficiary or utilized by the fiduciary in determining the amount that is distributed or required to be distributed to a beneficiary.

assuming it was a boilerplate doc for estate planning-for husband and spouse to utilize both estate exemptions-formed when wills were made in 1992-a simple residuary trust

i would like the capital gain to pass through on the k1 to the surviving husband instead of the trust owing taxes-is this possible?

thanks

sorry to be a pest here - just confused as to what this all means? thanks

Anyway a simple trust gives the bene the income, not the corpus.

If there is a gap gain/loss of any asset the trust owns, that is corpus, not income.

The simple trust pays tax on the cap gain. It does not go to the bene.

I suggest that you read the trust document and if you have any questions, speak to the elder law attorney who wrote it.

Also, the whole point of Reg §1.643(a)-3(b) is that a simple or complex trust may distribute capital gains if any of the 3 conditions are satisfied.

Can you explain what the 5 and 5 power means?

Thanks

I've gone through the Schedule I several times and can't figure out how to get the capital gains out of the Alt Min income.

Thanks for responding

This is a credit shelter trust-that will exist until the spouse /beneficiary passes away - can someone answer this for me?

Can capital gains in this type of trust pass through on a k1 to spouse/beneficiary?

I have a credit shelter trust of a previous fla resident

it had cgain income

so you passed the cgain income on to the bene on the k1?

your post above??

• distributions of principal for purposes of health, education, support and maintenance

• a limited power of appointment over the trust principal, which means the spouse can appoint the principal to anyone except herself, her estate, her creditors or the creditors of her estate

• an annual right to withdraw the greater of $5,000 or 5% of the trust principal.

so if surviving spouse was in his 90's and ill - i understand that he can tap into the principal for a distribution-but if he does this - and sells assets in the trust-who pays the tax?

(except for my capital gain question?)

1st spouse dies in 2002 assets are transferred to fund credit shelter/bypass trust in 2002 basis of assets in trust are fmv in 2002

interest/dividend income of trust assets each yr flows to beneficiary-(spouse) for spouse to pay taxes on as it comes through on k1 from trust

capital gains from trust assets have basis valuation date of 2002 and the gains are sometimes taxed to the trust and sometimes taxed to beneficiary via k1??

then if second spouse dies in 2008 - and all assets go to their only child.

the only child has 2 tax basis to track trust assets basis = fmv in 2002 second spouse-his father's-assets have basis in 2008

the only child has 2 tax basis to track 1. trust assets basis=fmv in 2002 2. the second to die-only childs dad-remaining assets have basis = fmv in 2008

Since you can't seem to get your hands on the trust instrument, you will never be able to build a "scenario" where the trust capital gains will flow through to the surviving spouse.

However, under the Florida UP&IA section 738.706 the fiduciary has powers to make adjustmts btwn princ & inc to offset shifting of economic interest or tax benes btwn income bene (widow) & remainder bene's (charitable Orgs) which arise from elections & decisions the fid makes regarding tax matters.

Sec 738.706 looks like sufficient guidance to enable allocating the capital gain income (and its character) to the income bene/fiduciary. The balance of the proceeds (the original basis in the shares) stayed in the trust and has now been reinvested in what will hopefully be productive assets (if the stock market will turn around).

Am I on shaky ground re sec. 738.706? If we take this position, would it still be a simple trust (I think so).

A capital gain is part of the corpus and does not get distributed. It stays in the trust.

I was planning on having both co-trustees sign a statement authorizing the capital gain distribution as a discretionary distribution of capital gain income for the "comfort/maintenance" of the widow for admin housekeeping - but it is not necessary.

Given the flexibility of the Fla UP&IA I think she can characterize it as DNI and don't plan on it being an invasion of principal.

?no?