Attribution from trust

[Bird]

Son owns 1/3 of company stock, and 2/3 is owned by a trust, where mother is an income beneficiary.  Sister owns no stock directly and I am noodling on whether mother's trust interest is attributed to sister.

Initially I thought "of course", then read somewhere that only actual interest would be attributed.  Then I looked in Who's the Employer and it confused me more.  I suppose we'd have to have the actual trust to see how and when mother could get more than just income, but let's assume she only has an income interest.

Or would any trust interest simply not be attributed under the rules against double attribution?

Any thoughts?

[Luke Bailey]

Bird, are asking about for purposes of controlled group? Under IRC sec. 1563(e)(3) you attribute to each beneficiary their actuarial interest, assuming maximum exercise of discretion by the trustee (where discretion is involved). So step 1, you determine mother's actuarial interest. Definitely want to get a copy of the trust and also get out some actuarial tables. To need step 2, I assume "sister" is sister of "son," therefore daughter of "mother." In that case, attributed to "sister" if sister under 21, see 1563(e)(6)(A), but no if 21 or over, see 1563(e)(6)(B). Because the initial attribution to mother is under 1563(e)(3), further attribution would be possible, see 1563(f)(2).

Since you have provided no specific facts or copies of documents, I am only treating as hypothetical and pointing out the provisions of the Code you would want to look at.

[Bird]

Luke, thanks for the reply.  Sorry the point of my question was not clear...it was actually for purposes of determining HCE status.  You are correct in your assumptions about sister being sister of son.  The Q is whether sister is an HCE by attribution of the mother's interest in the trust.  I know, at some point we need a copy of the trust.

[Luke Bailey]

So Bird, 318 attribution, not 1563. I think you'll have same answer except the age 21 rule is irrelevant. To mom based on actuarial interest (318(a)(2)(B)), from mom to child (318(a)(1)(A)(ii). Since the attribution to mom is under 318(a)(2), it is not excepted out of reattribution by 318(a)(5)(B).

[Bird]

1 hour ago, Luke Bailey said:

So Bird, 318 attribution, not 1563. I think you'll have same answer except the age 21 rule is irrelevant. To mom based on actuarial interest (318(a)(2)(B)), from mom to child (318(a)(1)(A)(ii). Since the attribution to mom is under 318(a)(2), it is not excepted out of reattribution by 318(a)(5)(B).

So many numbers and letters, wow!  😀

Thanks, I think I get it.

[Luke Bailey]

10 minutes ago, Bird said:

So many numbers and letters

Yes. Promotes compliance. 😀