3. The Kemper Trust is required to distribute $30,000 annually to each of its tw

Question

3. The Kemper Trust is required to distribute $30,000 annually to each of its two income beneficiaries, Kim and Karen. if the trust income is insufficient to pay these invade corpus t anounts, either from income for from corpus. For the current year the trust has taxable interest income amounts, the trustee can o the extent necessary. The trustee also has the discretion to pay out additional of S160,000 and DNI of $160,000. The trust distributes $30,000 to Kim and S150,000 to Karen What is DNI after the required distribution? a. b. What amount of the $30,000 is taxable to Kim? c. What amount of the $150,000 is taxable to Karen?

Explanation / Answer

(a)

Taxable interest income of trust = $160,000

Amount distributed to Kim = $30,000

Hence, remaining taxable interest income of the trust = 160,000 - 30,000

= $130,000

Amount distributed to Karen = $150,000

Since,amount distributed to Karen is $20,000 more than the taxable interest income of the trust, hence $20,000 would have been given to Karen out of corpus of the trust.

DNI (begining balance) = $160,000

Hence, DNI (after distribution) = 160,000 - 20,000

= $140,000

(b)

Amount distributed to Kim $30,000 is taxable in the hands of Kim since it has been distributed out of taxable interest income of the trust.

(c)

Total amount distributed to Karen is $150,000, out of which $20,000 has been given to him out of corpus of the trust. Hence, remaining $130,000 has been given to him out of taxable interest income of the trust. Hence, $130,000 is taxable in the hands of Karen

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