Trust Distributions

[geekgirldany]

I've been researching and I want to make sure I am clear on distributions from trust.

This will be for TY 2014. Client's mother passed away. An trust was established. The executor is currently finalizing any expenses the mother had at time of death. He will then distribute money out to the children equally. I believe there are 6 children.

Now this will be say $50,000 a child. Some children have already received some of the money to help during tough times.

I did not ask my client about the residence and she did not know what income producing accounts the mother had.

My question is when the beneficiary receives the $50,000... the income that is taxed... does it keep its "identity" and the beneficiary taxed on that? Say $20,000 came from stocks, $5,000 life insurance, $5,000 a IRA, and $20,000 cash.

Would they receive a K-1 showing their taxable portion of each type of income.... they would not be taxed on the full $50,000 would they?

I hope that makes sense. My brain is mush right now and I seem to be going in circles. This would be a simple trust not complex trust. it is my understanding complex trust keeps on going earning income.

Appreciate the help.
D

[TXEA]

They will only be taxed on their respective share of the income the trust earned in 2014. Their respective share will be based on their respective share of the distributions from the trust for 2014. The corpus of the trust that is distributed will not be taxable to the beneficiary - only the income earned by the trust.

If the trust terminates in 2014, there may also be some deductions that flow to the beneficiaries.

Also, take note of the difference between simple and complex trust. The Simple Trust requires that all income be distributed currently. The complex trust does not require income to be distributed currently; although income may be distributed to the beneficiaries.

Also, a Simple trust will revert to a complex trust if corpus is distributed.

[geekgirldany]

So the corpus that is distributed to the beneficiaries... they will not be taxed on that?

But say if the house is sold while in the trust and that money is distributed... they would be taxed on that income because it was earned while still in the trust?

[TXEA]

Distributions of corpus are not taxable.

If there is a profit on the sale of the home, under most documents/state laws, LTCG are taxed at the trust/estate level unless it is the final year of the trust/estate. If final year, will flow to benes.

If there is a loss, same as above - only a loss.

[Roberts]

If you do a google search for:
Haney, Buchanan & Patterson, LLP
and
THE INCOME TAXATION OF TRUSTS & ESTATES

They have a free pdf out there to download that explains a lot of this.
I'll be studying it along with the IRS instructions for form 1041 this offseason.

[Lion]

http://www.aicpa.org/interestareas/tax/resources/trustestateandgift/toolsandaids/downloadabledocuments/incometaxtrustestates.pdf

[geekgirldany]

Thank you all for responding and the PDF explains a great deal.

I will more than likely take some continuing education on Estates. I learned a great deal about them when taking my EA Exam but after 5 years and not having to deal with them I do not remember much.

[TAX SURGEON]

Trust

If you do a google search for:
Haney, Buchanan & Patterson, LLP
and
THE INCOME TAXATION OF TRUSTS & ESTATES

They have a free pdf out there to download that explains a lot of this.
I'll be studying it along with the IRS instructions for form 1041 this offseason.

THANK YOU for the information