For my set of the research, I chose to review Complex trusts which
are "trusts that are not required to distribute all their income
currently." (Anderson, 2023) Unlike simple trust which is a trust that
must distribute all their income but have no power to make charitable
contributions, complex trusts have a distribution deduction, this
deduction is the sum of all the income required to be distributed or is
distributed but cannot exceed the distribute-able income. Another
deduction that is available is the personal deduction which is
dependent on how the trust is classified. If it required to be paying
out all its income, makes no charitable contributions, distributes
principal it is classified as complex and has the exemption of $300. a
Another option for a complex trust is required to pay out all its
income, is authorized to make charitable contributions, distribute no
principal also has the exemption of $300. If there is authorization to
make discretionary distributions of income, but not principal, and
does not make any charitable contributions the personal exemption
would be $100. In the situation where there is authorization to make
discretionary distributions of both income and principal, but make no
charitable contributions it is also classified as complex with the
personal exemption of $100. One thing I found interesting in my
research is "it's also possible to convert a simple trust to a complex
trust and vice versa, if you find your needs change." (Sember, 2023) I
am not sure why, but I thought had it be one and stick with it. In
something like the revocable and irrevocable trusts, I have since
learned that that is not the case. Revocable, irrevocable trusts and
grantor trusts are the three main types of trusts and they are
classified as simple or complex. "Being aware of the income tax
aspects of these commonly used estate planning tools can help the
attorney and client make choices that can minimize the federal and
state income taxes payable at different stages of the trust’s
existence." (Hughes, 2012)
References:
Anderson, K.E., Pope, T.R. & Rupert, T.J. (2023) Taxation 2023
Corporations, Partnerships, Estates & Trusts Pearson. (Chapter 14 –
Income Taxation of Trust and Estates)
Sember, Brette J.D (2023) Simple trust vs. complex trust Retrieved
on: https://www.legalzoom.com/articles/simple-trust-vs-complex-
trust
Hughes, Barbara (January 2012 - Vol. 6, Issue 2)A Short Primer on
Trusts and Trust Taxation Retrieved on:
https://www.specialneedsalliance.org/the-voice/a-short-primer-on-
trusts-and-trust-taxation-2/
