The Listen to Lawrence Letter: Trust Income

READER QUESTION:

I allow my trustee to have the monthly income from a CD for himself…is that O.K.? That income goes into an account with his name on it, not mine.

MY RESPONSE:

Probably, but the answer depends on how the trust is written. If the trust says that you are entitled to the trust income, then directing the income to your son would be a transfer by you that would be subject to a five-year look-back. It is as if you took the income and gifted it to him.

However, I doubt that is what the trust says. More likely, the trust says that the trust income is not paid out to you but must be accumulated in the trust. In such a case, it is perfectly acceptable for the trustee to pay the income to himself (with your consent).

It sounds like you are both doing things correctly.

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