§662 Inclusion of amounts in gross income of beneficiaries of estates and trusts accumulating income or distributing corpus

Summary

Requires a beneficiary to report on their tax return the money an estate or trust pays, credits, or must give them. First, the beneficiary must include the income the trust or estate was supposed to pay them for the year, even if they did not actually get it. If the total required payments to all beneficiaries is more than the estate or trust’s distributable net income (measured without a certain charitable deduction), each beneficiary’s taxable share is reduced so everyone splits the available distributable net income in the same proportion as their required shares. Second, the beneficiary must also include any other amounts the estate or trust properly paid, credited, or was required to distribute to them that year. Those amounts keep the same tax type they had in the estate or trust (for example, ordinary income or capital gain). The estate or trust’s different income types and deductions are allocated among beneficiaries as a proportion of the estate’s items unless the trust document says otherwise. If the beneficiary has a different tax year, the amounts are based on the estate or trust years that end within or with the beneficiary’s year. Definitions: distributable net income — the estate/trust amount used to figure taxable distributions; section 642(c) deduction — a specific charitable deduction.