The Death of Percentage Allocation Rules For IRA Payments to a Non-Marital TrustThe Death of Percentage Allocation Rules For IRA Payments to a Non-Marital Trust

Among a trustee’s duties, properly allocating receipts between principal and income ranks near the top. Payment from an individual retirement account to a trust illustrates this point. The allocation impacts the amount of the IRA’s income the trustee must count as income of the trust and, per its terms, distribute to a current income beneficiary. Will all, a portion or none of the income earned inside the IRA become income of the trust and then pass down to this beneficiary?

The answer may exist in the trust’s governing instrument. A well-drafted trust includes fiduciary accounting rules to characterize an IRA payment as principal, income or a combination of both. For example, the terms of the trust may allocate an entire payment to incom...