Unitrust

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
• Pages: 49-49

A number of states have provisions that involve unitrust provisions under

the state trust law. These provisions may be incorporated in a state’s ver-

sion of the UPAIA or be in a separate statute.

The rules involved in a unitrust provision are technical in nature. Over

20 states have unitrust provisions.

Basically, a unitrust provision generally permits the trustee to deter-

mine the accounting income of the trust based on a xed percentage of

the net fair market value of the trust’s assets held in the trust as of the

beginning of the trust’s valuation year.

For example, assume that Carl is a mandatory income beneciary of

Martin’s trust. At the beginning of the trust’s accounting year 2014, the

trust assets are valued at $1 million. The trustee has elected that the

unitrust provisions apply to Martin’s trust. The unitrust percentage that

applies to Martin’s trust in state is 4 percent. In essence, Carl must receive

$40,000 ($1 million × 4 percent = $40,000) from Martin’s trust for the

calendar year 2014 as accounting income, regardless of the actual earn-

ings of the trust.

If, for example, Martin’s trust has only $10,000 of net earnings for the

calendar year 2014, Carl still receives $40,000. In a unitrust, the amount

of $40,000 that Carl must receive is not reduced by any expenses. Also,

Carl is taxed only on the net taxable earnings of the trust. If the $10,000 of

net earnings of the trust is made up of taxable interest income, then Carl

is taxed on only $10,000, and the difference between the $40,000 that he

receives and the $10,000 that he is taxed on is a tax-free distribution. In

this case, Carl receives a tax-free distribution of $30,000.

The IRS has issued nal regulations and states that the unitrust concept

is acceptable for IRS purposes if it is permitted under the state trust law.

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UNITRUST