Apple Trust reports net accounting income of $40,000, all from taxable sources. The trustee is required to distribute $15,000 annually to Megan. The trustee also makes discretionary distributions of $30,000, $7,500 to Megan and $22,500 to Caroline. The trust pays $5,000 of the discretionary distributions from corpus. What is the amount of the distribution deduction?

Question

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The distribution deduction for a trust includes both the required distributions to beneficiaries and any discretionary distributions made out of the current year's income. In this case, the required distribution to Megan is $15,000, and the discretionary distributions total $30,000 ($7,500 to Megan and $22,500 to Caroline), all of which are assumed to be from the current year's income except for $5,000 stated to be from corpus. Since distributions from corpus (principal) do not count towards the distribution deduction, the total distribution deduction is the sum of the required distribution ($15,000) and the discretionary distributions made from income ($25,000, which is $30,000 total discretionary distributions minus the $5,000 from corpus). This totals $40,000, which is the entire net accounting income of the trust.

Apple Trust Reports Net Accounting Income of $40,000, All from Taxable