Income Taxation of estates and trusts is inherently complicated. With the passage of the American Taxpayer Relief Act of 2012, this area of estate planning has become even more complicated. A recent article discusses how to minimize income taxation.
It is important for fiduciaries and beneficiaries of estates and trusts alike to be aware of some of the significant changes in the new tax laws. Along with the changes in tax laws come new strategies that fiduciaries and beneficiaries may take to minimize taxes.
One way to minimize income taxes is to make distributions of net investment income to those beneficiaries who do not meet the $200,000/$250,000 threshold. The Medicare Surtax of 3.8% does not apply to these individuals. One may also avoid high tax rates by making distributions to beneficiaries who are in the lowest tax bracket. This way, the income will be taxed at a low rate, rather than the higher rate of the estate or trust.
A second tip is to convert passive activities to active. For the purposes of a trust, activities that the trustee materially participates in are considered active. This is a beneficial move because when activities are active, any income the activity generated will not be considered investment income and therefore will not be subject to a surtax.
For assistance reducing your estate tax burden, speak with an estate planning attorney today.
