unsure of proration %

[Gretel]

This should be simple but I never had to prorate ownership % of trust with changing benes.

A 100% = 33 days of 365 = 9.04%

B & C each 50% +332 days = 45.48% each

Would someone please confirm this without shaking the head?

Thanks,

[Gretel]

more complicated

While I work my way through the complex 1041 I realize it is more complicated than I first thought. While I am pretty sure that the % calculation is accurate I do not know if income has to allocated as actually received minus expenses paid for purpose of the income distribution deduction.

Here is more information: This was a simple trust until trustee died (2/3/15), all income to be distributed. 2 kids are successor trustees and have taken out all cash they could get their hands on.
Only income actually received by deceased trustee is $23. Is this the income allocated as tier one income distribution or can I prorate total income for 2015 minus expenses? Of course, monies distributed to successor trustees far exceeds their income share.

[Burke]

Never mind the trustees; who were the beneficiaries? How did the trust read as far as distribution of it's assets? I am reading between the lines here, but it looks as if perhaps a parent may have been the original trustee, and the two children successor trustees. But it is the actual beneficiaries of such trust who are entitled to the proceeds, so you need to be a little more specific. And a simple trust means only the income was being distributed. If the trustees you mention are also the beneficiaries, then it appears the one who died is entitled to all the income up to the date of death and the successor beneficiaries are entitled to the balance of the income for the year. When you say "all income to be distributed" do you actually mean the trust provided for payout of all funds including principal at the first trustee's death? Net income for DNI can be pro-rated with a ratio to what they each actually got, not number of days or what they should have received, for the purpose of the tax return. If the "2 kids" got more than they should have, that is another matter to be dealt with legally if anyone else has an interest in the trust.

[Snaggletooth]

May be less complicated

Gretel, if the trust still exists for the duration of the year, there may be a simple solution.

The situation is complicated but your action might be simplified.

I believe the allocation of income is reportable (thru K-1s) based upon a proration of shares recalculated to account for the shares over each of the 365 days of the year. Change in beneficiaries means some or all of their percentages become weighted average percentages over the course of the year.

If the beneficiaries have plundered the cash of the trust, the new trustee will need to calculate the excess (over income) as due back to the trust for each beneficiary. Excess withdrawals do not change the income allocable thru the K-1s. If irregular withdrawals exist at the time the trust closes, then some of the beneficiaries have cause of action against the others.

[Gretel]

Thanks, I will clarify. Benis and trustees are one and the same. Until A (mom) died, she was the sole bene/trustee with income required to be distributed. As long as she was in charge, no principle was touched. Seems like in year of death for cash basis A, only income received up to her DOD is income distributed to her (yes, my software does it own % calculation based on distributions). How about income from CD's, which were cashed in later? Any constructive income issues, even if not received?

B & C (Children) are dissolving the trust as fast as they can (this is also what trust document says). No issues with over-distribution and as long as distributions are higher than income, all income flows through to them. Trust will be dissolved in 2016. I hope I was a little clearer now, feel kind of stupid to have used "trustee" instead of "bene".

Thanks for your patience.

[Burke]

Doesn't sound like you have any real issues here. CD interest is credited when paid out, so goes to kids based on your post. All should be cash basis taxpayers, so no accrued interest involved.