The Bedford Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee is required to distribute $30,000 to Roger and $60,000 to Sally. After payment of these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Bedford trustee distributes an additional $40,000 to Roger, and $40,000 to Sally. How much income from the trust must Sally recognize?

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The trustee is required to distribute $30,000 to Roger and $60,000 to Sally, which fully satisfies the trust's mandatory distribution requirement. Therefore, Sally's distributable net income is $60,000. The trustee then distributes an additional $40,000 to each beneficiary, which is treated as a discretionary distribution. Therefore, Sally must recognize $60,000 in income ($60,000 mandatory distribution + $0 discretionary distribution) since she received her full mandatory distribution amount already. Roger must recognize $70,000 in income ($30,000 mandatory distribution + $40,000 discretionary distribution).

The Bedford Trust Has Distributable Net Income for the Year