Remote beneficiary trustee

Remote beneficiary trustee

Trustee/Beneficiary: I read that even a non beneficiary sibling trustee who is a 4th alternate remote beneficiary may have tax problems. If in the "no takers clause section" of the trust I set up my niece's husband,etc for final beneficiaries, there would be 25 alternates under state law before the non beneficiary trustee became a remote beneficiary. Is that a safe enough distance.


Your question is a bit unclear but relates to important trust planning concepts. If you are a trustee and can distribute trust income or assets to yourself as a beneficiary income and estate tax problems could be triggered.

If a trust discharges your legal obligation of support, such as making payments for a minor child that state law obligates you to care for, you will be taxed on trust income. Treas. Reg. Sec. 1.672-2(c). This result will occur even if you are not the grantor of the trust. Treas. Reg. Sec. 1.662(a)-4.

In some instances limiting a trustee/beneficiary's right to make distributions to an ascertainable standard may minimize or avoid tax problems.

In evaluating whether a trust is a grantor trust the status of a person a beneficiary could be important. Certain tests for grantor trust status require that the person holding a power be non adverse. For purposes of this the grantor trust provisions of the Internal Revenue Code, the term "non adverse party" means any person who is not an adverse party.For purposes of this the grantor trust rules of the Code, the term "adverse party" means any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or non exercise of the power which he possesses respecting the trust. A person having a general power of appointment over the trust property shall be deemed to have a beneficial interest in the trust.

If the trust has already been executed then trust provisions, and state law, will have to be evaluated. The issues are complex and need to be framed carefully and evaluated with a tax specialist.

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