The Doyle Trust reports distributable net income of $100,000 for the year and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $30,000 to Roger and $30,000 to Sally. After payment of these amounts, the trustee can make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $25,000 to Roger and $25,000 to Sally. How much income from the trust must Sally recognize?

Question

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Sally must recognize $50,000 of income from the trust. This includes the mandatory distribution of $30,000 plus the discretionary distribution of $20,000. The total distributable net income of the trust is $100,000, and Sally receives a total of $55,000. However, because the distributions to both Roger and Sally together ($110,000) exceed the distributable net income, the income recognized by each beneficiary is prorated based on the distributable net income. Since the question specifically asks for Sally's recognized income, it is $50,000, reflecting her share of the distributable net income based on the distributions made to her.

The Doyle Trust Reports Distributable Net Income of $100,000 for the Year