The 505 FixThe 505 Fix
There can be serious tensions with beneficiaries when a trustee is required to distribute all of the trust's income currently (meaning, it's a mandatory income trust) and the trust holds an interest in a partnership or other pass-through entity. The problem stems from the fact that such trusts report their distributive share of the entity's income, but don't always receive all of the entity's income.
Steven B. Gorin
There can be serious tensions with beneficiaries when a trustee is required to distribute all of the trust's income currently (meaning, it's a mandatory income trust) and the trust holds an interest in a partnership or other pass-through entity.
The problem stems from the fact that such trusts report their distributive share of the entity's income, but don't always receive all of the entity's income. Indeed, the entity sometimes distributes only enough for its owners (including the trust) to pay their taxes.
If, in turn, the trustee distributes only enough to pay the trust's income taxes, beneficiaries receive nothing and could grow unhappy — sometimes unhappy enough to file suit challenging the trustee's decision. And the d...
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