Time to Review Trusts to Mitigate Impact of Tax Hikes

9:15 pm California Trusts, Estate Planning

tax wallet empty 150x150 Time to Review Trusts to Mitigate Impact of Tax HikesMany people with established trusts should schedule some time in the next few weeks to talk with their estate planning attorney about the effect that new hikes in the capital gains tax and the 3.8% Obamacare tax will have on their trusts.

As noted in a recent Forbes article, any trust income over $11,950 that a trust does not distribute will be hit by the capital gains tax rate that is now 20% plus the 3.8% Obamacare tax.  This potentially affects millions of Americans who established bypass, marital, special needs and other trusts to shield assets while providing for beneficiaries.

For many trusts, trustees have the decision-making power when it comes to determining when and to whom to distribute income.  The IRS is allowing a 65-day grace period (until March 6, 2013) to take distributable net income out of a trust and have it count towards 2012 taxes.  It may be beneficial for some to accelerate income distributions; those in high-income brackets may also be able to save at least 4.6% or more since the Obamacare tax does not apply in 2012.

Depending on your individual circumstances, you may even want to consider dissolving a trust, especially if it was set up to shelter assets from the federal estate tax and that protection is no longer needed since the passage of the fiscal cliff tax deal set the federal estate tax exemption at $5.25 million (adjusted for inflation) for 2013.

The only way you’ll know the best way to proceed is by scheduling a meeting with an estate planning lawyer.  Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

Leave a Comment

Your comment

You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Please note: Comment moderation is enabled and may delay your comment. There is no need to resubmit your comment.