Rubin on DING Trusts

Chuck Rubin has a great post on his blog about DING Trusts:

http://rubinontax.floridatax.com/2013/10/ding-trustsa-primer.html

The post doesn’t mention the PLRs issued earlier this year (PLR 201310002-201310006) which “blessed” the use of DINGs. Here is an ACTEC article on these PLRs:

http://www.actec.org/public/Akers_Favorable_DING_Trust_PLRs_Musings.asp

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Trials and Tribulations of Nongrantor Trusts

Chuck Rubin has a great article on his blog in which he reviews the high tax rates that nongrantor trusts pay on their undistributed income.

In addition, he discusses some intriguing solutions to the withdrawal problem of these trusts; be forewarned that he attempts to cover the “5 by 5” power — don’t say I didn’t warn you!

2013 TAX INCREASES EXACERBATE THE INCOME TAX NEGATIVES OF NONGRANTOR TRUSTS

WSJ on Reducing a Trust’s Income Taxes

The WSJ recently addressed the idea of a trust reducing its income taxes in this Wealth Management article.

The article two main suggestions are to:

  • Restructure the trust’s investments portfolio, to eliminate or reduce the assets that generate the kind of income subject to the highest tax rates; and
  • Review the distributions from the trust, with the objective of moving the taxable investment income to beneficiaries who might be in lower tax brackets.

These are good, general suggestions for managing a trust’s income tax liability.  The higher tax brackets in 2013, combined with the new Medicare Tax on Net Investment Income (MTNII), do not change the tax planning concepts; they just change the magnitudes.

How to distribution excess tax payments — 2013

Trusts have the option (under IRC §643(g)) to treat any portion of a payment of estimated tax made by a trust for any taxable year as a payment made by a beneficiary of the trust. The election to allocate must be made on or before the 65th day after the end of the tax year by filing Form 1041-T.

March 6

(The 65th day of 2013 is March 6. See related post here.)

The amount is treated as paid by the beneficiary on January 15 of the following tax year (for the purposes of calculating underpayment of estimated taxes). This election may also be made by an estate, but only in its last taxable year.

This election may be useful for trusts which unexpectedly have little or no tax liability last year, or after distributions were made causing the tax liability to shift from the trust to the beneficiary.

Citation: IRC §643(g)

65-Day Rule — 2013

March 6

For an updated article about the 65-Day Rule in 2015, click here.

For an updated article about the 65-Day Rule in 2014, click here.


Fiduciaries of estates and complex trusts have the ability to treat certain distributions as having occurred last year. An election can be made with respect to distributions made within 65 days after the end of a tax year. The 65th day of 2013 is Wednesday, March 6.

Fiduciaries are allowed a deduction for amounts actually paid. During this 65-day period, a fiduciary can compute its fiduciary accounting income and distributable net income and compare these amounts to distributions already made during the year. If necessary, additional distributions can be made to balance the allocation of income between the fiduciary and beneficiary.

The election can be made on all or part of distributions made. Therefore, a fiduciary can over distribute what might be necessary to pass out 2012 income to a beneficiary, but elect a smaller amount when the income tax return is prepared. Any amount distributed but not treated as 2012 distributions will naturally be 2013 distributions.

The distributions are then treated as having been made on the last day of 2012.

Remember that fiduciaries pay the highest tax rate (i.e. 35%) on all taxable income over $11,650 in 2012, and only have personal exemption between $100 (for complex trusts) or $600 (for estates). It may be advisable to make distributions to beneficiaries in a lower tax bracket for overall tax savings.

Example: A complex trust earned interest and dividends during 2012 of $20,000, and paid investment advisory fees of $2,000. If no distribution is made from the trust, the trust will pay federal income tax of $5,374. If the trustee makes a distribution to an income beneficiary in the 25% tax bracket, then she would have additional income tax of $4,500. The net tax savings is $874.

While taxes are not always the driving force behind trust administration decisions, they should always be considered.

Reporting: The Form 1041 do not require any kind of formal declaration of the amount of distributions paid in 2013 and treated as paid in 2012. (However, be sure to keep good records so that the amount is not reported again as a 2013 distribution.) There is a check box on the bottom of page 2 of the Form 1041 which must be checked when a §663(b) election has been made.

Timing: a §663(b) election must be made on a timely filed return (including extensions). The election becomes irrevocable once the due date of the return has passed [Reg. §1.663(b)-2.1]


Simple trusts are not required to consider actual distributions when determining the trust’s Income Distribution Deduction, as all accounting income is required to be distributed. If some amount of accounting income has not been distributed during a calendar year, then it should be distributed as soon as administratively possible, without regard to a hard 65-day limit.

Citation: IRC §663(b)

65-Day Rule – 2012

For an updated article about the 65-Day Rule in 2015, click here.

For an updated article about the 65-Day Rule in 2014, click here.

For an updated article about the 65-Day Rule in 2013, click here.


March 5

Fiduciaries of estates and complex trusts have the ability to treat certain distributions as having occurred last year. An election can be made with respect to distributions made within 65 days after the end of a tax year. The 65th day of 2012 is Monday, March 5.

Fiduciaries are allowed a deduction for amounts actually paid. During this 65-day period, a fiduciary can compute its fiduciary accounting income and distributable net income and compare these amounts to distributions already made during the year. If necessary, additional distributions can be made to balance the allocation of income between the fiduciary and beneficiary.

The election can be made on all or part of distributions made. Therefore, a fiduciary can over distribute what might be necessary to pass out 2011 income to a beneficiary, but elect a smaller amount when the income tax return is prepared. Any amount distributed but not treated as 2011 distributions will naturally be 2012 distributions.

The distributions are then treated as having been made on the last day of 2011.

Remember that fiduciaries pay the highest tax rate (i.e. 35%) on all taxable income over $11,350 in 2011, and only have personal exemption between $100 (for complex trusts) or $600 (for estates). It may be advisable to make distributions to beneficiaries in a lower tax bracket for overall tax savings.

Reporting: The Form 1041 do not require any kind of formal declaration of the amount of distributions paid in 2012 and treated as paid in 2011. (However, be sure to keep good records so that the amount is not reported again as a 2012 distribution.) There is a check box on the bottom of page 2 of the Form 1041 which must be checked when a §663(b) election has been made.

Timing: a §663(b) election must be made on a timely filed return (including extensions). The election becomes irrevocable once the due date of the return has passed [Reg. §1.663(b)-2.1]


Simple trusts are not required to consider actual distributions when determining the trust’s Income Distribution Deduction, as all accounting income is required to be distributed. If some amount of accounting income has not been distributed during a calendar year, then it should be distributed as soon as administratively possible, without regard to a hard 65-day limit.

Citation: IRC §663(b)

How to distribution excess tax payments

Trusts have the option (under IRC §643(g)) to treat any portion of a payment of estimated tax made by a trust for any taxable year as a payment made by a beneficiary of the trust. The election to allocate must be made on or before the 65th day after the end of the tax year by filing Form 1041-T.

March 7

(The 65th day of 2011 is March 7. See related post here.)

The amount is treated as paid by the beneficiary on January 15 of the following tax year (for the purposes of calculating underpayment of estimated taxes). This election may also be made by an estate in its last taxable year.

This election may be useful for trusts which unexpectedly have little or no tax liability last year, or after distributions were made causing the tax liability to shift from the trust to the beneficiary.

Citation: IRC §643(g)