cjc_07
Level 1

I'm no expert, but here's what I think might work to achieve the desired end....It is my understanding that distributions above DNI are considered to be tax-free return of principal. These distributions can be made within the first 65 days of the year and be elected to count as distributions for the prior year. Assuming the trust is supposed to distribute the entire DNI amount, it could then distribute an amount above that to cover the additional taxes the beneficiary will have to pay. The bonus is that the tax due will likely be less than if being paid on the trust's tax return. Here's an example. Let's say, in 2020, the trust's DNI was $10,000 and that $10,000 was distributed to the beneficiary. Now within the first 65 days of 2021 the beneficiary figures their taxes and the effect of the $10,000 distribution cost them an extra $1,200 in taxes due. Then the trust could distribute $1,200 from principal, by electing to count the distribution toward the 2020 distributions made (by following the 65-day rule). I'm not an expert and don't know if this would work for your situation, but that's my 2 cents worth. Obviously, it's too late for 2020 taxes, but maybe next year????

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