Whether undistributed income in a family trust may be taxed in the beneficiaries' hands continues to concern taxpayers. Questions concerning the types of payments that may be made for the benefit of a beneficiary also continue to arise. Paid or payable. An amount may be deducted from trust income if it is paid to or for the benefit of, or becomes payable to, a beneficiary or it was paid for the upkeep or maintenance of trust property used by the beneficiary.
Many advisers prefer simple payment to a beneficiary.
Funds may be deposited in the joint bank account of a minor child and the parents as guardians. Or the trust may pay for the upkeep of trust property used by the beneficiary. Amounts payable to beneficiaries out of trust income are deductible. If the trust is non-discretionary, the beneficiaries did not attain age 21 in the year, and their rights to the income are vested, income is deemed payable if it was not subject to any future condition other than the individual's surviving to age 40. This rule should also apply to a single-beneficiary trust.