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CRUT Trust timing of annual payout

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    CRUT Trust timing of annual payout

    Client has a CRUT Trust that pays 5% of the trust value annually. Payment is always received December each year & (for income taxes client receives Form 5227, and Schedule K-1, line 4a, net long term capital gain) the following March.
    Client did not receive a check 12/2016, contacted the Trust and they made a mistake and will pay out soon in 2017. Client has not received either the 2016 Schedule K-1 & Form 5227 or the payment for 2016 and we are following up.
    Question: Does the client have the option to claim the net long term capital gain in his 2016 taxes or does it have to be claimed in 2017 ( therefore, he'll have 2 payouts to claim in 2017)?

    Thank you in advance.
    EA_TAX, NY

    #2
    Follow up: Found the answer I believe to be correct via link for IRC Section 663 (b) 65 day rule

    Thank you in advance.
    EA_TAX New York

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      #3
      You must have breathed a big sigh of relief when you discovered the 65-day rule in Code §663(b), and I'm sure the settlor breathed an even bigger one. I just hope the payout for 2016 was made NLT March 6, 2017. Assuming that it was, be sure to treat the payout as if it was made in 2016, reporting the income on the settlor's K-1. To make the 663(b) election, just check the box on F-1041. It's on page 2 or 3, as I recall.

      A straight CRUT seldom has to make a §663(b) election, because its payout amount is fixed fairly early each calendar year. In fact, payouts from ordinary CRUTs are often made more often than once a year ... quarterly is common. A NICRUT or a NIMCRUT, however, almost always needs that 65-day time period in order to determine the Trust's income for the year just ended. Only then can that year's payout be figured and, in the case of a NIMCRUT, can any additional "makeup" amount be known as well.

      If your client's Trust is a straight CRUT, and the annual 5% payout was supposed to have been made during the year, then someone had better have a little talk with the trustee.
      Roland Slugg
      "I do what I can."

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        #4
        Dear Roland Slugg:

        Thank you very much for your reply. Unfortunately the payment did not happen yet, which is not good for my client, so in agreement with your comment, I called them with my client to "have a talk".
        A valuable learning lesson for me to add some oversight to any clients that have CRUT.


        Thank you!

        EA_TAX, NY

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