Fiduciary Income Taxation of Trusts
Subchapter J in practice: DNI, the distribution deduction, simple versus complex trusts, grantor-trust status, the 65-day rule, and the cost of trapping income.
What this guide covers
- Determine grantor versus non-grantor status first; the grantor-trust rules of IRC 671-679 displace Subchapter J entirely.
- DNI caps the distribution deduction and the beneficiaries' inclusion and determines the character of what they receive.
- Capital gains allocated to corpus stay in the trust and are taxed at the compressed rates; draft and apply a consistent allocation provision under Treas. Reg. 1.643(a)-3.
- The IRC 663(b) 65-day election is the principal post-year-end tool, but the distribution must still satisfy the trust's distribution standard.
- IRC 67(e) preserves deductibility for costs unique to trust administration; IRC 642(c) governs charitable deductions and requires instrument authority.
- Plan the final year deliberately: IRC 642(h) passes excess deductions and carryovers to the beneficiaries.
The full guide includes the detailed analysis, worked examples, statutory citations, and related resources below.
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Educational reference, not legal advice. Prepared for licensed professionals as general reference; not legal advice and no attorney-client relationship is created. Law varies by state and changes over time — verify transfer-tax figures and statutory citations against current primary authority. This resource was last updated 2026-09-18. Estateur is not a law firm.