Dear Dan, I understand trusts pay taxes on a harsher schedule than people. What I don’t get is why so many people are setting up trusts and exposing the assets to the higher taxes. What am I missing? — Eddie
Dear Eddie, You are correct that the marginal tax brackets applicable to trusts make the taxes payable much higher than that for people. For instance, for a single taxpayer to pay taxes at the highest marginal federal rate of 37%, she would need to have taxable income in excess of $578,125. A trust need only have more than $14,450 to reach that rate. I am not a lawyer and do not give legal advice. What I can do is give you a simplified explanation of how trust taxation can work. I think what you are missing is that not all trusts result in taxes at trust rates. There are a lot of different types of trusts but at the basic level many are “granter” trusts. A granter, sometimes referred to as a settlor, trustma …
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