Question

Which of the following would cause a trust to be treated as a complex trust for income tax purposes for the current tax year?

A. The trust requires that an amount equal to accounting income be distributed to the trust's income beneficiary
B. The trust distributes the balance of trust principal in its final year
C. The trust received tax exempt income during the tax year
D. The trust was orginally funded during the current tax year

Answer 1

Answer: B.

The trust distributes the balance of trust principal in its final year

Explanation: A trust is a legal document which one creates during his or her lifetime and continues after the person's death. Trust are established to protect the interest of the investor and ensure the beneficiary (s) enjoys the benefits. A trust can be called a complex trust when it distributes the balance of it's principal during the final year for income tax purposes or a Simple trust which distributes it's payment currently and see not accumulate income.