What you Need to Know About TRUSTS & TAXATION
Trust Taxation – A trust is a private estate plan which is administered by a trustee of your choosing (usually the Grantor/Maker/Settlor during life), avoids a public probate process and provides for the management of your assets without the necessity of court-supervised Guardianship. Revocable trusts are taxed at the Grantor’s individual tax rate and use a 1040 return. By contrast, an irrevocable trust must have its own federal ID number and utilizes an IRS 1041 return. Further, income retained by an irrevocable trust is taxed at 39.6% plus an additional 3.8% Obama-Care surtax, totaling 43.4%. It is therefore imperative to annually pass out irrevocable trust income to beneficiaries in order to avoid the significantly escalated tax rate.
Other Tax Information
• For 2016, the Federal Estate Tax Exemption (unified credit) is $5,450,000, per person. This means that there is no federal estate tax on estates valued at less than $5,450,000.
• The state of Ohio eliminated Ohio estate taxes effective January 1, 2013. Therefore there is no Ohio estate tax.
• For 2016, the annual gift tax exclusion is $14,000. This means that an estate can be depleted by passing out up to $14,000 per year, per donee(gift recipient), to as many beneficiaries as you like without incurring a gift tax liability.
• Other gifts without taxation:
Gifts to a political organization for its use
Educational expenses (tuition only) paid directly to the school
Medical expenses paid directly to a provider/facility.