Yellow Trust must distribute 33% of its income annually to Patrick.In addition,the trustee in its discretion may distribute additional income to Minna or Patrick.In the current year,the trust has net accounting income and distributable net income of $150,000,none from tax-exempt sources.The trust makes a $50,000 mandatory distribution to Patrick and a discretionary distribution of $20,000 each to Patrick and Minna.What amounts of income do Patrick and Minna report?

Question

Quizplus · Accepted Answer

Patrick is entitled to 33% of the trust's income, which equals $49,500 (33% x $150,000).
The mandatory distribution to Patrick is $50,000 which exceeds his 33% entitlement. Thus, Patrick's total distribution is $50,000 ($49,500+$500).
The discretionary distribution to Patrick is fully included in his distribution, as the mandatory amount exceeds his entitlement. 
Therefore, Patrick reports a total distribution of $50,000 and Minna reports a distribution of $20,000.

Yellow Trust Must Distribute 33% of Its Income Annually to Patrick.In