Trust expenses

[Ranger]

Client is a beneficiary to a trust left by his grandmother. There is a small farm with a house that he lives in rent free. The farm is rented out. Client shares net income with his brothers per trust document and he will receive exclusive ownership 5 years after date of death.

My concern involves household expenses including utilities and minor repairs paid by the trust. (Client is also the trustee and handles the trust checking account.) I understand that these expenses are not deductible on form 1041. But for instance, would the utilities paid by the trust for the house lived in by beneficiary be considered a distribution?

Thank you for any comments you might have.

[jasdlm]

Is the Farm in the trust? Is the Farm Income paid to the trust? Does the Trust authorize expenses for maintenance of the property? Is the income distributed evenly among brothers?

[Ranger]

The farm is in the trust and the only source of income for the trust. The trust states that the income will be divided evenly among the brothers after deducting all cost of managing the property.

All of the expenses related to the farm (which is rented out) will go on form 4835. I dont see where the upkeep or utilities for the house can be deducted on form 1041. I believe the upkeep of the house is deductible in arriving at the amount to distribute to the brothers.

My real concern is the utilities paid by trust for the house which one of the brothers lives in rent free. Could that be considered cost of managing the property or would it be considered distribution in kind. As I mentioned, all the real property will pass to him in five years.

Thanks for you reply jasdlm.