Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I have heard that the federal income tax rates for trusts are higher than those for individual taxpayers.  Is that true?

Answer: The top trust federal income tax bracket is the same as the top bracket for individual taxpayers at 35%.  The top rate for trust income starts at a much lower income level than for individuals, though.  Here’s the income tax table.

Not every trust will be liable for income tax based on the table rates.  Some trusts—such as most living trusts—will pass through their income tax results to the grantor.  Other trusts—such as most testamentary QTIP trusts—will pass through the income tax result to one or more of the trust beneficiaries.

In general, a trust will be liable for income taxes at trust rates if the trust is

• A non-grantor trust, and
• Trust income is accumulated inside the trust

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