Trustee of discretionary trust distributing to a deceased estate

Hi all,
Mr X died on 5 July 2020. The trustee of a discretionary trust intends to make the estate of Mr X presently entitled to an income distribution for the tax year ended 30 June 2021. Are there any disadvantages/penalties the trustee of the discretionary trust needs to consider in making a deceased estate presently entitled to income if it occurs in the same financial year as the death of Mr X? Also, are there any negatives/penalties that the executor of the estate of Mr X needs to consider when preparing a tax return for the estate of Mr X for the 2021 tax year?

 

I would be suggesting legal / tax advice on this idea. Other beneficiaries may also have concerns with this approach and this could expose the trustee to legal actions. There may also be family trust election issues impacted by this and well as the terms of the trust. The trust deed may or may not allow such a distribution and FTE laws may also prevent a distribution without a tax issue.

Also subsection 99A(3) of the Income Tax Assessment Act 1936 gives the Commissioner of Taxation the power to deny access to the concessional tax rates available under section 99 (threshold and lower rates being a tax benefit) v 47% as default trustee tax of the Income Tax Assessment Act 1936 where the Commissioner believes benefits have been conferred on the trust estate for the purpose of obtaining concessional tax rates. By applying subsection 99A(3), the full amount of the income derived by the trust could potentially be exposed to penalty tax rates under section 99A. That additional tax would be assessed to the trustee who may or may not have recourse on trust property.

s99A acts like Part IVA and is a caution to trustees that intend to distribute to deceased estates to access lower tax rates

There will be two tax issues for the executor.
1. Date of death return for X and
2. A estate return for the period after death

 

Is the Estate actually a valid beneficiary of the discretionary trust?

 

Why does the trustee want to distribute to a deceased estate.
This will create a testamentary trust with mixed corpus, some qualifying as generating excepted trust income under s102AG and some not

The trustee should seek legal advice.

 

Assignment question??