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As successor trustee, you are faced with numerous tasks after the death of a loved one. This includes paying the taxes. Unfortunately, there are many different types of taxes that may become due during the implementation of an estate plan. These taxes include federal estate taxes, federal income taxes, California state income taxes, estate income taxes, and trust income taxes. In addition, the trust itself must pay income taxes in certain cases.

The Trust May Have to File a Tax Return

Certain types of trusts must file income tax returns. At a minimum, after the decedent’s death, his trust must file an income tax return if its gross income is $100 or more. Further, if a trust is not required to distribute all of its income to its beneficiaries, it may have to file an income tax return.

The Tax Rate for a Trust Is Higher

The income tax rate for a trust is higher than that of an individual and the tax kicks in at a much lower level than it does for individuals. In fact, trusts have their own income tax rate schedule. This tax rate applies to all of the income that the trustee decides to keep in trust rather than distribute to the beneficiaries.

Beneficiaries May Have to Pay Taxes Too

Beneficiaries that receive income from the trust are responsible for paying income tax on the share that was distributed to them. As trustee, you will be responsible for sending each beneficiary a Schedule K-1 that tells the beneficiary their share of the trust’s income as well as their allocable share of deductions and credits. This information is used to prepare the  beneficiary’s income tax return.

Implementing estate plans involving trusts can be a complex matter. Fortunately, you do not have to navigate this process alone. Contact our office today to learn how we can help.

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