The new year tax hikes hit some trusts with substantial tax increases that must be accounted for in your planning.

  • The top marginal rate increases from 35% to 39.6%. Capital gains taxes  increase from 15% to 20%. This applies to individuals who make over $400,000 ($450,000 for couples) but to trusts at a level of just $11,950.
  • The  3.8% Affordable Care Act tax applies to net investment income over  $200,000/$250,000 but again, the threshold for a trust is only $11,950 before this tax kicks in.

This tax scheme applies only to trusts which are not grantor trusts and which accumulate, rather than distribute annual income to the beneficiaries. For these trusts, earning even small amounts of income, the new capital gains rates result in a 23.8% tax on capital gains despite the fact that the beneficiary may only be in the 15% territory.

Using trusts for asset protection and even to shift income to low tax jurisdictions certainly remains a viable strategy but proper planning will be essential to avoid tax traps.

Asset Protection and Tax Planning with Grantor Trusts

Tax Hikes Hit Trusts Hard – Beneficiaries Pull Money Out