The taxpayer relief act – I love that name since tax rates went up – raised the top tax rates that trusts pay on income. So, for 2013, new rates apply when trust taxable income goes over $11,950. And, in case you didn’t know, the 3.8% Medicare contribution tax also applies to trust income above that figure.
Remember: Even though the tax law is supposed to be permanent, it means it will be permanent only until the next change.
Note: The income of these trusts is taxed to the trust creator, instead of the trust itself, allowing trust assets to grow without the tax burden, which allows more money to be distributed to trust beneficiaries later on. Of course, that means grantors of trusts previously set-up may not be as happy about the arrangement as they were originally. Few people really like giving more money to Washington.
Non-grantor trusts may be able to distribute income in a way that reduces a family’s total tax outlay, but doing so may inhibit future growth inside the trust.
Now may be a good time to talk with your tax professional and, of course, your estate planning attorney.
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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.
The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.