How Taxes Work for Trusts

How Trusts Are Taxed

What Is a Trust?

A legal arrangement where one party (the trustee) holds assets for the benefit of another (the beneficiary).

Grantor Trusts

The most common living trust:

• Grantor (creator) is considered the owner for tax purposes
• Income taxed on grantor's personal return
• No separate tax return needed
• Includes revocable living trusts

Non-Grantor (Complex) Trusts

• The trust itself is a taxable entity
• Files Form 1041 (Trust Tax Return)
• Tax rates are highly compressed: 37% kicks in at just $15,650 of income (2025)

Strategy: Distribute income to beneficiaries in lower tax brackets to reduce the tax burden.

Simple vs. Complex Trusts

• Simple trust: Must distribute all income each year
• Complex trust: Can accumulate income

Trust Tax Rates (2025)

| Rate | Income | |---|---| | 10% | $0 – $3,150 | | 24% | $3,151 – $11,450 | | 35% | $11,451 – $15,650 | | 37% | Over $15,650 |

Irrevocable Trusts

• Assets transferred out of the grantor's estate
• Trust pays its own taxes or distributes to beneficiaries
• Used for estate planning, Medicaid planning, and asset protection

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Have a trust or considering one? Trust taxation requires specialized knowledge — our team can help.