What is a complex trust IRS?

A complex trust is any trust that does not meet the requirements for a simple trust. Complex trusts may accumulate income, distribute amounts other than current income and, make deductible payments for charitable purposes under section 642(c) of the Code.

Why is the distribution of income and principal separated in a trust?

The income is the interest, dividends, and other income earned by the principal. Because income and principal are often distributed separately, to different beneficiaries, an estate or trust must account for separately for income and principal.

How often does a trust have to distribute income?

A simple trust must distribute all of its trust accounting income (or FAI) annually, either under the terms of the document or under state law. A complex trust doesn’t have to distribute all of its income or make principal distributions.

Can a trust distribute dividend in lieu of interest?

For instance, the trustee cannot distribute capital gain income in lieu of interest or dividend income as a way to lessen the tax impact on the beneficiary. If the trust holds excess DNI, any distribution of appreciated stock is characterized as a distribution of taxable income.

How are complex trusts different from simple trusts?

Unlike a simple trust, a complex trust is not required to distribute all its accounting income currently; rather, the accounting income of a complex trust may be accumulated (Sec. 661), distributed to charity (Regs. Sec. 1.661 (b)- 2 ), or both. A complex trust can also make distributions from corpus (Sec. 661).

Can a trust be distributed on a staggered basis?

You can have your trust make staggered distributions of trust assets, which means the beneficiaries receive them over time based on rules that you set. For example, the grantor may choose to distribute trust funds on a timed basis, like monthly, or only after certain triggering events, such as when the beneficiary turns 18 or gets married.