Income Tax Problems of Fiduciaries and Beneficiaries
BY LAURENCE 0. EAMES PRINCIPAL, CHICAGO OFFICE
Presented at a technical session of the Illinois Society of Certified Public Accountants, Chicago — December 1956
As there are many types of trusts, I should first define the particular
type of trust I propose to discuss. We will exclude from consideration: Associations taxable as a corporation, Investment trusts, Liquidating trusts and Tax-exempt trusts, such as charitable trusts or foundations, and employee-pension and profit-sharing trusts.
This definition is not intended to limit the questions which may be asked later but merely to limit the subject to be covered in the allotted
Specifically, we are considering a trust created by will or by a grantor where the trustees take title to and protect and conserve the corpus; the grantor is not a beneficiary and the beneficiaries do no more than accept the benefits of the trust.
The trust is a separate taxable entity and its entire income must be reported on a return filed by the trustee. A trust or estate is subject to the same normal tax and surtax as an individual taxpayer — that is, a single taxpayer who is not the head of a household.
Unlike an individual, however, the trust is allowed a deduction for that part of its gross income which is distributable to the beneficiaries or which is properly paid or credited to the beneficiaries. The income which is allocated to a beneficiary retains the same character in the hands of the beneficiary as it had under the trust. This principle of retention
of character of income considers the trust to be a mere funnel