GST Question

[robrush44]

I have a client with a GST exempt trust where the lifetime beneficiary is the daughter of the transferor and also the trustee of the trust. All of the net income must be distributed and principal may be distributed based on HEMS. The remindermen are all skip persons.

The trustee/beneficiary has failed to make the required net income distributions to herself, which has me worried that this inaction may be treated as a contribution to the trust making a portion of the trust subject to GST upon the trustee/beneficiary's death.

If this is the case, can I simply remedy the situation by having the trust pay the beneficiary the amount of the undistributed income plus interest? Or, is this going to require the trustee/beneficiary to file a gift tax return for the amount of the undistributed income and allocate some of her GST exemption?

Thanks in advance.What is the name of your state?

 

[tecate]

This might be a matter of state law.

For example, in California, here is Probate Code Section 16347(b): (b) Except as provided in subdivision (c), on the date when a
mandatory income interest ends, the trustee shall pay to a mandatory
income beneficiary who survives that date, or to the estate of a
deceased mandatory income beneficiary whose death causes the interest
to end, the beneficiary's share of the undistributed income that is
not disposed of under the trust.

Does your state have a similar provision in the Principal and Income Act?