The Suarez Trust generated distributable net income (DNI) this year of $150,000, one-third of which was portfolio income, and the balance of which was exempt interest.Under the terms of the trust, Clara Suarez is to receive an annual income distribution of $30,000.At the discretion of the trustee, additional distributions can be made to Clara, or to Clark Suarez III.This year, the trustee's distributions to Clara totaled $90,000.Clark also received $90,000.How much of the trust's DNI is assigned to Clark?

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The trust generated DNI of $150,000, with one-third ($50,000) being portfolio income and the remaining two-thirds ($100,000) exempt interest. Clara Suarez is entitled to receive an annual income of $30,000; however, the trustee distributed $90,000 to her this year, exceeding her entitlement by $60,000. As the distribution to Clara exceeded the amount of DNI generated by the trust, the excess distribution ($60,000) is considered a return of principal and is not subject to income tax.

The remaining $90,000 of DNI was distributed to Clark Suarez III, and all of it is subject to income tax. Therefore, $72,000 of the $90,000 distributed to Clark is portfolio income (being one-third of DNI) and $18,000 is exempt interest (being two-thirds of DNI). Since only portfolio income is subject to income tax at the trust level, the full $72,000 of portfolio income is assigned to Clark.

The Suarez Trust Generated Distributable Net Income (DNI) This Year