Trusts and taxation
I understand that trusts are taxed at the highest tax bracket if the income is over 12,950 so my questions are, does it matter if it is revocable or not? Is this just for IRA’s in a trust or both NQ and IRA’s?
I understand that trusts are taxed at the highest tax bracket if the income is over 12,950 so my questions are, does it matter if it is revocable or not? Is this just for IRA’s in a trust or both NQ and IRA’s?
Permalink Submitted by Alan - IRA critic on Tue, 2021-03-02 16:10
Generally, these higher rates apply to all trust income of irrevocable trusts, but only if the income is accumulated in the trust. In many such trusts, the income is passed through to the trust beneficiaries on a K-1 and taxes are paid at the beneficiary’s personal tax rate. The trade off is that control of the funds and the added creditor protection provided by a trust is typically accompanied by higher income taxes. Revocable trust income on the other hand is taxed at the grantor’s personal rates and reported on Form 1040. Upon death of the grantor these trusts become irrevocable.