Question on Distributing a Fund

[DaveC49]

Hi Mark,
The distribution from a trust is analagous to the owner of a business
withdrawing funds. That is normally done through an Equity accounts E.g
assuming 2 beneficiaries and you were distributing the funds in your example
equally. 
First you will need to clear your Income accounts to Equity 

Income:change in market Value        15.00
Equity: Retained Earnings                                              
15.00

Your total Asset balance is now 115.00 and the total Equity balance is also
115.00 while the Income:change in market value will now have a zero balance. 

This is because Income and expense accounts are both temporary or nominal
Equity accounts used to record increases and decreases in equity during the
current accounting period, you would normally close them to Equity on an
annual basis, usually at the end of the financial year recording the
difference as retained earnings. The normal procedure in doing this would be
first to close the income and expense accounts to an Income Summary account
which records the profit/loss (nett earnings for the period) and then close
the Income Summary account to Equity:Retained earnings as above. 

To distribute the proceeds to the beneficiaries
Equity:Distributions:BeneficiaryA       57.50
Asset:investment account                                            57:50

Equity:Distributions:BeneficiaryB       57.50
Asset:investment account                                            57:50

After these transactions your Asset:investment account  should have 0
balance and the equity will also have a 0 balance assuming all the funds
have been distributed. I am presuming that trust income is totally taxed in
the hands of the beneficiaries in the above. This is not the case where I
live (Australia) as in some circumstances trust income is taxable in the
hands of the trustee and the trustee has to pay Pay As You Go tax to the tax
office on any distributions to the beneficiaries as well as Capital Gains
Tax on capital gains of investments. You may need to check your local
legislation for the taxation of trusts in your jurisdiction which will
modify considerably the above simplified treatment.

Cheers

David Cousens



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