David Biscoe Bingham (Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.): Think Twice Before You End A Trust – Income Tax Consequences of Trust Commutations and “Early Terminations”(February 24, 2023)

David Biscoe Bingham, of (Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.), has made available for
download his article, Think Twice Before You End A Trust – Income Tax Consequences of Trust Commutations and “Early Terminations”, published in JDSUPRA. The abstract is as follows:

Despite the Rule Against Perpetuities (which basically says a trust can’t go on forever) being repealed in many states, most trusts, as a practical matter, don’t go on forever. In an ideal scenario, the terms of the trust indicate when the trust is to end and who will receive the assets at that time. Often, that’s exactly what happens; and, thankfully, the income tax treatment is favorable. The recipient takes the trust’s basis in the property distributed, and the no capital gain or loss is recognized by either the trust or the recipient.[1],[2]

But sometimes the trust doesn’t make it that far. Family feuds and litigation, changed circumstances, and changing tax laws all create situations in which a trust either should be ended, or must be ended. In most scenarios, there are two broad “classes” of beneficiaries of the trust who must be satisfied when a trust ends before its time – the income (or life) beneficiaries, and the remainder beneficiaries.

Click here to view David Biscoe Bingham’s summary of Think Twice Before You End A Trust – Income Tax Consequences of Trust Commutations and “Early Terminations”

Posted by Kaitlyn Bare, Associate Editor, Wealth Strategies Journal.