2015 Estates and Trusts Income Tax Rates

The applicable table set forth below shows the 2015 Income tax rates on estates and trusts:

Trusts and estates are also subject to the increase in capital gains tax rates from 15 to 20 percent as well as the 3.8 percent surtax on investment income. Note, however, that the new rates apply only to non-grantor trusts and estates that accumulate income. Trusts and estates are allowed a deduction for income distributed to beneficiaries, who are then taxed in the year of distribution. Grantor trusts, by definition, do not pay income taxes since all income of a grantor trust is reportable by the grantor on his individual 1040 income tax return.

The challenge posed by the new tax law is how much of and when to distribute income to beneficiaries of non-grantor, complex trusts which are trusts that are not required by their terms to annually distribute all income to their beneficiaries. Distributing income today lowers trust taxation, and may, depending on the income enjoyed by beneficiaries, reduce the overall tax burden.

Given that trust income in excess of only $12,300 is taxed at the maximum rate of 39.6 percent, while much larger amounts of income are required ($464,850 for a married couple filing jointly, $413,200 for a single filer) before the maximum rate kicks on individuals, trustees may need to reallocate and rebalance trust portfolios to obtain an overall better tax result. Trustees will also need to pay close attention to the varying needs of beneficiaries and their individual tax rates. Given the wide disparity in rates and bracket amounts between individuals and trusts, trustees must consider not only the needs of current beneficiaries, but also those of future generations of beneficiaries. If you have any questions about trust taxation contact Gregory J. Spadea at 610-521-0604 of the Law Offices of Spadea & Associates, LLC in Ridley Park, Pennsylvania.