Under the new Obamacare tax laws, net investment income is now taxed at 3.8%. Under the American Taxpayer Relief Act, the top income tax rate is up to 39.6% , while the top capital gains rate is 20%.
Most non-grantor trusts pay tax on capital gains. They also pay tax on the accumulated income that stays in the trust. Note: trust beneficiaries pay tax on distributed income. Because of this, non-grantor trusts will face a 23.8% capital gains rate (20% plus 3.8%). This could prove a double whammy tax burden for those trusts that distribute less than the $400,000 (single filer) and $450,000 (joint returns) income tax thresholds, and $200,000 (single filer) and $250,000 (joint returns) Obamacare thresholds.
As a balm, the Internal Revenue Service will allow trusts a 65-day grace period (January 1 – March 6, 2013) during which a trust can distribute income but treat it as if it were distributed in 2012.
Trusts facing a potential double whammy should consult an experienced trust professional.
Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.