42.30.105 FIDUCIARY - MONTANA DISTRIBUTABLE NET INCOME AND MONTANA INCOME DISTRIBUTION DEDUCTION – CHARACTER
(1) Montana distributable net income (DNI) limits the deduction that a decedent's estate or trust may claim for aggregate distributions to beneficiaries and determines how much of the distribution has to be included in the beneficiaries' gross income.
(2) Montana DNI is computed in the same way distributable net income is computed for federal income tax purposes under Internal Revenue Code section 643, but with Montana adjustments to income as provided in 15-30-2152, MCA, and ARM 42.30.104.
(3) Decedent's estates and trusts are allowed to deduct the lesser of:
(a) the amounts of income actually distributed, including other amounts paid, credits, or amounts otherwise required to be distributed; or
(b) the taxable portion of Montana DNI.
(4) If a decedent's estate or trust elects for federal income tax purposes to treat distributions made within 65 days after the end of the tax year as having been made in the tax year, the decedent's estate or trust must also treat the distributions as having been made in the tax year for Montana income tax purposes.
(5) Income distributed to a beneficiary from a decedent's estate or trust retains the same character in the hands of the beneficiary as it had in the hands of the decedent's estate or trust, with the exception of unused capital loss distributed upon closure of the decedent's estate or trust to a corporation, which is treated as a short-term loss regardless of its character in the decedent's estate or trust.
(6) Unless the will or trust instrument specifically provides otherwise, a distribution to beneficiaries is considered to be a proportionate distribution of the different kinds of income composing the Montana DNI of the estate or trust. The same character and proportionate distribution rule is illustrated by the following example:
(a) Decedent A, a resident of Montana, died February 15, 2016. Under the terms of the will, all the decedent's property was divided in equal shares to beneficiary B, a resident of Arizona, and beneficiary C, a resident of Montana. The estate adopted a calendar year as its taxable year. For calendar year 2016, the estate had Montana DNI of $50,000, which is composed of:
(b) On December 20, 2016, the estate distributed $12,500 to beneficiary B, and $12,500 to beneficiary C. Beneficiaries B and C received a distribution for 2016 as follows:
(c) Since the interest income of the estate is 20 percent of the Montana DNI, 20 percent of the distribution to beneficiaries B and C is considered interest income. Likewise, 10 percent of the estate's Montana DNI is dividends and 70 percent is farm income.