Deadline Approaches for Distributions Eligible for 65-Day Election by Calendar-Yearend Complex Trusts and Estates: March 6, 2015

The fiduciary of a complex trust or estate can elect annually to treat amounts paid or properly credited by the complex trust or estate to a beneficiary within the first 65 days following the close of the tax year as paid or credited on the last day of the immediately preceding tax year with respect to both the trust or estate and the beneficiary.  The election applies to part or all of distributions made in the first 65 days of the tax year.  The amount to which the election applies is limited to the greater of fiduciary accounting income or distributable net income, both of which must be reduced by amounts distributed during the year, excluding amounts covered by this election for the previous year.  While distributions must be made during the first 65 days of the year, the election is made when the Form 1041 income tax return is filed.

Administratively, this provision allows a fiduciary to determine the income of the complex trust or estate for the year just ended, while there is still time to make distributions that can be treated as having been made at the end of that year.  The election may also present an opportunity to minimize the combined income tax burden of the trust or estate and the beneficiaries.  Recently-increased income tax rates and the 3.8% net investment income tax make such planning even more important.  Also, when considering distributions and the 65-day election, the liquidity, 2014 taxable income, 2015 taxable income, and other contemplated future distributions must be considered for both the trust or estate and the beneficiaries.

Please contact your HM&M tax advisor soon for help in analyzing the possible benefits of a 65-day election for distributions made on or before March 6, 2015.

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