The American Taxpayer Relief Act of 2012 (“ATRA”) has changed the tax landscape for Trusts, especially when it comes to distribution of long term capital gains. Currently, long term capital gains are treated as principal for distribution purposes. With the enactment of the ATRA, Trusts are more likely to pay a much higher tax rate than the individual beneficiary. In addition, the ATRA requires a Trust to pay a 3.8% surcharge if the Trust has over $12,500.00 in modified adjusted gross income (MAGI). Individual tax payers are also required to pay the surcharge if their MAGI is over $200,000.00. Individuals may want to consider amending their trusts to authorize the distribution of such gains. However, such decision may also adversely affect your ultimate goals regarding the administration of your trust, so a detailed discussion should take place before any changes are made. Below is a summary of the 2016 tax rates for trusts and estates.
|If Taxable Income Is Between:||Marginal Tax Rate||Capital Gains and Qualified Dividends Tax Rate:|
|$0 – $2,550|
|$2,251 – $5,950|
|$5,591 – $9,050|
|$9,051 – $12,400|
* includes 3.8% surcharge
Laura M. Trujillo
Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.