Estate Planning: Simple Trust Income Types and Beneficiary Impact

Published on: Dec 18, 2023 by Richard Kollauf - JD, CPA, CFP, AEP

Updated on: March 11, 2024

One avenue of estate planning to explore is a simple trust. In a simple trust, the income that the trust receives must be distributed at least annually to its beneficiaries. Different types of income can impact the beneficiaries.

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In the cases of trusts, income can have different meanings. It can refer to taxable income or fiduciary accounting income. If the trust owns an interest in a business, the income it receives (often reported on a K1 form) is considered taxable income. This income is what the trust earns from its business holdings.

The distributions from the business to the trust are considered income for fiduciary accounting purposes. The amount distributed to the beneficiaries of the trust is determined by its fiduciary accounting income, not just the taxable income. This distinction is vital in understanding the financial implications for the beneficiaries.

When setting up a simple trust, it's important to understand the goals and objectives of the grantor and how the trust's cash flow or distributions will affect the beneficiaries. This requires careful planning and understanding of the trust's structure and tax implications.

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To learn more about estate planning and simple trusts, please contact Richard Kollauf, a Principal at SVA Certified Public Accountants.

© 2023 SVA Certified Public Accountants

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Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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