Income Distributions
What types of income distributions are there?
- mandatory distributions to grantor
- mandatory distributions to third parties
- discretionary distributions to grantor
- discretionary distributions to third parties
- sprinkling provisions
- accumulating income
For each type of distributions, we need to analyze the consequences:
- income tax while the grantor is alive
- gift tax
- protection from creditors
- Medicaid
- estate tax
- income tax while the grantor is alive
There can be additional consequences to consider, such as property tax.
Distributions to Grantor
Distributions to the grantor can be:
- mandatory
- discretionary
- sprinkling
Distributions to the grantor make the trust a self-settled trust because the grantor is a beneficiary.
For purposes of Medicaid, when the grantor can receive income from the trust, Medicaid deems the trust’s income to be available to the grantor. 18 NYCRR 360-4.5(b)(1)(ii).
A trust cannot provide the grantor with income and terminate the income when the grantor needs long-term care. EPTL 7-3.1(c).