QUESTION
Is principal or income allocation necessary when all income beneficiaries are also remainder beneficiaries?
Asked on Feb 09th, 2017 on Estate Planning - California
More details to this question:
I'm a beneficiary of a family trust. My brother, sister and I equally share trust benefits. All three are both income and remainder beneficiaries. Net income is required to be distributed. In this case does it matter that the trustee uses income to pay for things that should be paid from principal? I don't fully understand the concept, but it seems that if we are all treated the same it shouldn't matter. Is this something I should be concerned about?
1 ANSWER
Yes, it matters. First, it is a violation of the trust instructions. Secondly, by reducing the principle you reduce the future income, but paying out of the income has no effect on the size of the principle. Since you three are the only beneficiaries, no one will know, but it should not be done.
Answered on Apr 21st, 2017 at 7:48 AM