Which statement is true about sprinkling trusts?

Which statement is true about sprinkling trusts?

• A. They must be simple.
• B. They must have only one beneficiary.
• C. They must be complex.
• D. They may be either simple or complex.

Answer: (D)

Sprinkling trusts are designed to distribute trust assets to multiple beneficiaries in varying amounts, rather than to a single recipient. The terms simple and complex describe how a trust handles income: a simple trust must pass all current income to beneficiaries and can’t accumulate, while a complex trust can accumulate income and make discretionary distributions. Because sprinkling is about distributing to several beneficiaries, it doesn’t lock the trust into one tax or distribution form. It can be set up to pass through income as it arises in a straightforward way (simple) or to exercise discretion, possibly accumulating or distributing in varying shares among several beneficiaries (complex). So sprinkling trusts may be either simple or complex depending on how the distributions and potential income accumulation are structured.

Sprinkling trusts are designed to distribute trust assets to multiple beneficiaries in varying amounts, rather than to a single recipient. The terms simple and complex describe how a trust handles income: a simple trust must pass all current income to beneficiaries and can’t accumulate, while a complex trust can accumulate income and make discretionary distributions. Because sprinkling is about distributing to several beneficiaries, it doesn’t lock the trust into one tax or distribution form. It can be set up to pass through income as it arises in a straightforward way (simple) or to exercise discretion, possibly accumulating or distributing in varying shares among several beneficiaries (complex). So sprinkling trusts may be either simple or complex depending on how the distributions and potential income accumulation are structured.