In an irrevocable trust, if capital gain is realized by the trust with trust principal distributed out to a trust beneficiary during the calendar year, the distribution of trust principal to the trust beneficiary may be tax-free to him/her with the capital gain taxed to the trust.
This kind of potential consequence can be played out when you set up such a trust. You can "role play" such scenarios with your estate planning attorney. From there, you can better design the trust.
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