The Brighton 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 $25,000 to Roger and $50,000 to Sally. After payment of these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Brighton trustee distributes an additional $20,000 to Roger, and $30,000 to Sally. How much income from the trust must Sally recognize?

Question

Quizplus · Accepted Answer

Since the trustee is required to distribute $25,000 to Roger and $50,000 to Sally, those amounts are considered specific bequests and are not part of the distributable net income. Therefore, only the remaining $25,000 is available for discretionary distributions. The trustee distributed $20,000 to Roger and $30,000 to Sally from this amount, leaving $5,000 of distributable net income undistributed. Sally must recognize the $50,000 she received as a specific bequest, plus her share of the remaining distributable net income ($5,000/$55,000 = 9.09%), which is $4,545. Therefore, Sally must recognize a total of $54,545 of income from the trust. Roger received $25,000 as a specific bequest and $20,000 from discretionary distributions, for a total of $45,000 of income from the trust.

The Brighton Trust Has Distributable Net Income for the Year