A hypothetical person has an irrevocable trust fund set up for him when his/her parents die. The adult child is the sole beneficiary of the trust and the sole trustee. He has a general power of appointment over the money in the trust. He/she has the right to take money out of the trust or leave it in there to accumulate. In one year the trust has $30,000 of dividend income and $20,000 of tax free interest income.
Can the adult child distribute $29,000 (and only that amount) from the trust, claim that the money is all dividends and then the trust will pay no taxes?
The way I see it, the trust will have $1000 of taxable income which will result in no tax due.