65 Day rule trust distribution

Don’t forget about the 65-Day Rule. Section 6(b) allows a trustee or executor to make an election to treat all or any portion of amounts paid to beneficiaries within days of the close of the trust’s or estate’s tax year as though they were made on the last day of the prior tax year. Utilizing this rule can provide a significant tax savings to the trust , possibly at a lower tax cost to the beneficiary. To manage the tax burden IRC Section 6(b) allows trustees to elect to make distributions to trust beneficiaries in the first days of the new calendar year.

Simply put, a 6(b) election allows distributions made to beneficiaries within days of year-end to be counted as prior-year distributions.

For example, a distribution of $5of trust income by the trustee to a beneficiary on Jan. This is the last day that an election can be made to treat any distribution by an estate or trust as having been made the preceding tax year. It allows the trustee of a trust or executor of an estate to treat certain distributions made in one tax year as if they were made on the last day of the previous tax year. It appears the day rule does not apply, but instead a reasonable period of time standard. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.

Section 6(b) of the Code allows a fiduciary to distribute income from an estate or trust in the first days (before March 6) of the year and treat it as though it was distributed on the last day of the preceding year. This only applies to estates and complex trusts.

In simple trusts, the income flows through automatically to the income beneficiary or beneficiaries. This “day rule” can help you make more advantageous tax planning decisions. Consideration needs to be given to the expected tax rates of the beneficiary and the trust on their respective returns. This is especially true now, as there are distributions and elections that need to be made within the first week of March. To the extent that the income is distributed to a U. Application of this rule will be significant in, for example, situations in which income is accumulated for beneficiary A but a distribution is made to beneficiary B of both income and corpus in an amount exceeding the share of income that would be distributable to B had there been separate trusts (or estates).

The Throwback Tax, p. If after the beginning of the New Year, the trustee realizes that there is excess income remaining after accounting for distributions made in the preceding year, the - Day Rule allows the trustee to treat distributions made within the first days of the New Year as if the distributions were made in the preceding year. This Rule allows trustees to make distributions within days of the new tax year and then elect to treat the distribution as though it was made on the last day of the previous tax year. This election treats distributions made within the first days of any taxable year of an estate or a trust as made on the last day of the preceding. A trust is a charitable trust only if all of the net earnings for the taxable year and remaining life of the trust are for distribution for such purposes.

No part of the earnings of a charitable trust may benefit any beneficiary who is a private individual. Ed Slott IRA Technical Expert Jeffrey Levine takes you through the nuts and bolts of the rule in the IRAtv video below. Let’s take a look at how it works and how you can take advantage of the rule. Internal Revenue Code Section 6and Treasury Reg.

For estates and trusts, §6(b), otherwise known as the 65-day rule, states that a fiduciary can make a distribution to its beneficiaries within days after year end and retrospectively apply.

This is sometimes necessary, if there is extra income that was not distributed within the prior tax year. This exception is called the - day rule. A trustee cannot manipulate the tax character of a distribution unless instructed by the trust document. For instance, the trustee cannot distribute capital gain income in lieu of interest or dividend income as a way to lessen the tax impact on the beneficiary.

Once made, the election is irrevocable. As a reminder, the “Day Rule” allows a trustee to elect to make a trust distribution within days of the end of the preceding tax year and effectively transfer some of the income and tax liability from the trust to the trust beneficiary who received the distribution. Estates and complex trusts may elect to treat distributions made within the first days of a calendar year as if they were made in the prior calendar year. A fiduciary of a trust or estate can elect to treat all or any part of a distribution made within days after the end of a tax as made in the previous tax year.

Funding bequests with property in kind. Phantom fiduciary taxable income. Reducing and deferring taxes. Distributions of interests in passive activities.

When terminating a trust , you must be certain that all required income distributions have, in fact, been made to the income beneficiary before you can distribute the remaining trust principal to the person designated to receive it (the remainderman).