Comprehensive Planning. Lifelong Solutions.

The 65-Day Rule: What Every Trustee Should Know about Taxes

Print Friendly

By Jessica A. Hayes

Happy New Year! We hope you and yours had an enjoyable holiday season and that 2017 brings you happiness and good health.  With the close of the calendar year behind us, tax season is just beginning for individuals and many entities.  If you are serving as the trustee of a complex trust, however, it’s not too late to take action that may reduce total taxes paid overall.

First, a couple of definitions: A “complex trust” is a trust that either retains current income in the trust, distributes trust principal, or has a charitable organization as a beneficiary. A “simple trust” is a trust that is required to distribute all of its annual income to the beneficiaries, but no principal may be distributed.  Income of the trust is taxable to the recipient.

Trusts pay the highest federal income tax rate of 39.6% at a much lower threshold than individuals (at $12,400 as opposed to $415,050 for a single individual in 2016). Most trust beneficiaries have a lower tax rate than the trust; therefore, income that is distributed to the beneficiaries (which is then taxed to the beneficiaries instead of to the trust) ultimately results in a tax savings between the trust and the beneficiaries.

To manage the tax burden of a complex trust, trustees can use the “65-Day Rule” (also called a 663(b) election) to make distributions to trust beneficiaries for the first 65 days of a calendar year. The 65-Day Rule applies only to complex trusts, because by definition, a simple trust’s income is already taxed to the beneficiary at the beneficiary’s presumably lower tax rate.

If after the beginning of the New Year, the trustee realizes that there is excess income remaining after accounting for distributions made in the preceding year, the 65-Day Rule allows the trustee to treat distributions made within the first 65 days of the New Year as if the distributions were made in the preceding year.  This means that trust distributions made through Monday, March 6, 2017 may be treated as having been made in 2016.

In order to use the 65-Day Rule, the trustee must make the 663(b) election on page two of IRS Form 1041, the trust’s income tax return. If the trustee makes this election, he should keep careful records to ensure that the tax return for the following year does not errantly treat those distributions as distributions made in the following tax year, as well.

Kit KatAsk Kit Kat – Canine Cancer Research

Hook Law Center:  Kit Kat, what can you tell us about how dogs are used in cancer research, and how this benefits humans.

Kit Kat:  Well, this is very interesting and inspiring. Veterinary scientists did not start out treating dogs for cancer to only benefit humans. In fact, most cancer treatments for dogs were first developed for humans. However, what was discovered was that dogs’ and humans’ biological systems were more alike than previously thought. So, it really didn’t make sense to restrict trials for new medications to mice, who usually don’t get cancer. To conduct cancer trials on mice, the cancer has to be induced, while both dogs and humans get similar cancers without such effort.

So some veterinary schools are leading the way in research with dogs, that just so happens to benefit humans. Take, for example, the case of Flyer, 70-pound golden retriever who had osteosarcoma in one her legs. The leg was amputated, and she underwent chemotherapy. Now she is being followed via chest x-rays at the University of Pennsylvania’s Ryan Veterinary Hospital to see if the cancer has reappeared in her lungs, a frequent complication. As a precaution, because many dogs with osteosarcoma die within a year of cancer reappearing in their lungs, Flyer was given an experimental vaccine to ward off cancer’s return. Flyer has to frequently return for x-rays to monitor her progress. The course of treatment was 3 intravenous doses, and it has worked thus far—she remains cancer-free. Researchers are hoping to adapt the vaccines used for dogs to humans, especially children, who develop osteosarcoma at a higher rate than adults. It looks promising. According to Nicola Mason, a veterinarian and immunologist at Penn’s Veterinary School, ‘Where dogs really stand out is in the way they generate tumors and react to treatments, which is a lot like people.’

Across the country, medical and veterinary school are collaborating on research and treatment for this and other cancers such as lymphoma, melanoma, brain and bladder cancer. Pharmaceutical companies, in some cases, like to start studying a new treatment on a dog. If the results are promising, they then move on to adapting it for humans. Everyone should be grateful to these patient canines who are better suited overall to being research subjects than we cats. Cats tend to become stressed in research settings. However, there is one bright spot for cats—cats are used in studies about oral cancer and breast cancer. In these 2 particular types of cancer, cats’ cancer is very similar to the human version.

In short, we dogs and cats are are doing our best to help our human caretakers stay healthy. We all want to live as long as possible! (Laurie McGinley, “New tricks in canine cancer research may improve treatments for humans, too,” The Washington Post, Health & Science, November 26, 2016)

Upcoming Seminars

Distribution of This Newsletter

Hook Law Center encourages you to share this newsletter with anyone who is interested in issues pertaining to the elderly, the disabled and their advocates. The information in this newsletter may be copied and distributed, without charge and without permission, but with appropriate citation to Hook Law Center, P.C. If you are interested in a free subscription to the Hook Law Center News, then please telephone us at 757-399-7506, e-mail us at mail@hooklawcenter.com or fax us at 757-397-1267.

Comments

comments

Posted on Friday, December 30th, 2016. Filed under Newsletter.
Like us on Facebook
Planning Guides

Sign up for our email newsletter and get access to our free planning reports.

SUBSCRIBE NOW

Ask Kit Kat: Pet advice and wisdom as Kit Kat sees it.

ASK ME