Trust Capital Gains Question.

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Trust Capital Gains Question.

Post by RiseAgain »

I understand capital gains in an irrevocable trust are usually allocated to corpus. However it is possible to have them allocated to income, as per what I was told by the CPA's who specialize in trusts.

Now here is the question, that even the CPA's with 20+ experience in dealing with trusts do not seem to know:

Is it possible for capital gains to be allocated to corpus, but have the beneficiary pay tax on the gains?

Reading the pertinent law, one CPA said yes. He said it would have to be included in DNI (DIstributable Net Income) if the trust terms allow for it. But the trustee doesn't have to actually distribute it, so it will remain in a trust, yet because it was included in DNI, tax liability was moved to the beneficiary.

Another CPA said that it can certainly be included in DNI, but it would have to actually be distributed to the beneficiary.

Can anyone with actual experience or case law definitively answer this question?
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