Question

Ernest Jacobson created an irrevocable trust in February of last year and designated his friend Eileen Frazier as trustee. Eileen is empowered, for life, to distribute such income as she deems appropriate to herself each year. Any income not distributed to her in a given year must be retained and distributed to the remainderman Elliott Jacobson after Eileen’s death. Last year, the trust received $22,000 of income, all from dividends, and Eileen distributed $4,000 of the income to herself. It is early in the second year, and your supervisor requested that you write a short memo addressing what portion, if any, of the income is taxed to the trust. She further suggested that you begin by consulting IRC Sec. 678.

Answer 1

Pgo AnswerAs per the section 678 (a) do IRC; - A person other than the grantor shall be treated as the owner or any portion of a trust with respect to which * such person has a power solely exercisable by himself/ herself to rest the corpus or income there from in himselt / horsello. Kasuh person has previously partially released on Otherwise modified such a power and after release or modification retains such control as would within the principle of the sections Gith to 67.7 inclusive, as owner the rols subject the grantlow do the trust to the trealmert. .. only in certain cases the grantor of a trust will be faxable where the grantov vetains pocoes over the. corpus or income from the fresti Section 678(a) will not apply in such Cases and grantor or the trust will be taxable.

- since Eileen has been vested with the rights @ to the income from the trust in the given ease and the grantor does not retain any power over the income or Copus the grantor is not the owner of the trust and will not be taxable. - Eileen will be considered the owner of the trust and the Trust as such will not be taxable. - Hence no portion of the income will be taxed to the trust.