Can a soleTrustee/beneiciary have discretion regarding distribution of IRA income?

Submitted by Harold Porter on Wed, 2015-01-07 00:36

Can the sole beneficiary, who is also the trustee of an irrevocable trust, distribute the IRA income the trust received (trust doesn’t pay the taxes) to a non-beneficiary of the trust without the inconvenience of a court ruling? The reason for this is for him to have less taxable income which would then qualify him for a large tax credit for Obama Care Health Insurance.(The non beneficiary is his mother in law and her will provides for all her assets to go to his wife, so hopefully he will eventually get it back). As far as the IRS is concerned they are getting paid their taxes either way! The other option, leaving the money in the trust, was ruled out because it doesn’t make financial sense considering the trusts greater tax burden.



Submitted by mk foss on Fri, 2015-01-09 00:19

Distributions to someone other than the trust beneficiary would genarally be treated as a distribution TO THE INCOME BENEFICIARY. There is nothing in federal tax law that allows income to be carried out to anyone other than the named beneficiary.

Submitted by Bruce Steiner on Sun, 2015-01-25 00:53

  • If the beneficiary has a power of appointment over the trust, he/she can exercise it in favor of anyone in the class of permissible appointees.  (If the trust is the recipient of IRA benefits, the class of permissible appointees can’t include anyone older than the person whose life expectancy is used to measure the required distributions.)
  • If the beneficiary does not have a power of appointment, it may (depending on the terms of the trust and on applicable state law) be possible to decant the trust to add a power of appointment.
  • If the beneficiary is a trustee, he/she can’t participate in discretionary distributions to himself/herself (except for an ascertainable standard such as health, maintenance, support and education).

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