Under the terms of the governing trust instrument, the trustee of ABC trust is required to distribute all trust income annually to trust beneficiaries.In the current taxable year, the trust had taxable income of $100,000.However, because of an illness late in the year, the trustee failed to make any actual cash distributions to beneficiaries.The beneficiaries will report and pay tax on the $100,000 of current year trust income even though no actual distribution was made.

Question

Quizplus · Accepted Answer

Under the terms of the trust, the income must be distributed annually to the beneficiaries, regardless of whether or not an actual cash distribution is made. The beneficiaries are still responsible for reporting and paying taxes on the trust income.

Under the Terms of the Governing Trust Instrument, the Trustee