Author Topic: Tricky trust question  (Read 3582 times)

aGracefulStomp

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Tricky trust question
« on: July 22, 2019, 08:38:55 AM »
Just want to see what people's thoughts are with this one, particularly for those who are savvy with trusts.

A trust makes $100 of capital gains but also makes $1000 capital loss, leaving it with a net capital loss of $900.

Trusts cannot distribute net capital loss to beneficiaries. My understanding is that the trust must use the capital loss to reduce the capital gain, which means that the net capital income will be $0.

What happens with the $100 of capital gains that is sitting in the trust bank account? Can the trust distribute the capital gains to a beneficiary, and it's just not taxed?
« Last Edit: July 22, 2019, 09:06:51 AM by aGracefulStomp »

marty998

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Re: Tricky trust question
« Reply #1 on: July 22, 2019, 03:10:36 PM »
Lets say the trust started with $1000 capital (corpus) and $1000 in its bank account. It makes an investment of $1000, and sells that investment for $1100. It then makes another investment with that $1100 and makes a $1000 loss.

The trust now has $100 in its bank account. The original capital has been reduced by $900.

The $100 is not earnings - I'd suggest you would only be able to distribute the remaining $100 back to the beneficiaries in line with the vesting (or other) rules of the trust contained within the trust deed.

aGracefulStomp

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Re: Tricky trust question
« Reply #2 on: July 31, 2019, 05:25:54 AM »
Thanks Marty - I think you're right. Thank you for putting me in the right direction!