Simple Trusts and the 65-day Rule

Do Simple Trusts have to follow the 65-day rule?

No. First, the 65-day rule [IRC §663(b)] is a provision of Subpart B (of Part I of Subchapter J), which directs the operations of complex trusts. Second, the rule applies to the amount of cash distributed from a complex trust for the purposes of determining the Income Distribution Deduction (IDD); simple trusts do not look to cash distributions in determining IDD because ALL accounting is required to be distributed [IRC §651].

So when are simple trust distributions made?

Simple trust distributions should be made as often as required in the trust document, but no less frequently than annually. Where State law fails to specify, then common sense must prevail.

What happens if I don’t make the required distributions from a simple trust?

The answer depends on the amount undistributed. If the required amount undistributed is small, the trustee and beneficiary may decide to overlook the shortfall and leave the small amount in the trust.

For larger amounts, if might be necessary to treat the undistributed amount as part-grantor trust.

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