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

The mandatory distribution to Patrick is $50,000, leaving $100,000 of distributable net income. 
Since the trustee made a discretionary distribution of $20,000 each to Patrick and Minna, there is $60,000 left to distribute ($100,000 - $50,000 - $20,000 - $20,000). 
Yellow Trust must distribute at least 33% of its income to Patrick, which is $49,500 ($150,000 x 33%). Since Yellow Trust already distributed $50,000 to Patrick, he has satisfied his mandatory distribution requirement. 
Therefore, the remaining $9,500 of the $60,000 discretionary distribution goes to Minna ($60,000 - $20,000 - $20,000 - $9,500 = $10,500 for Patrick and $30,000 for Minna). 
Patrick reports $50,000 of income ($50,000 mandatory distribution), and Minna reports $30,000 of income ($20,000 discretionary distribution + $10,000 additional discretionary distribution).

Therefore, the correct answer is B.

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