As part of our commitment to keeping you informed about important tax matters, we want to bring your attention to the upcoming deadline related to the 65-day rule for distributions from complex trusts.
The 65-day rule allows trustees of complex trusts to make certain tax decisions, specifically regarding the distribution of income, within the first 65 days of the new tax year. This rule provides an opportunity for trustees to allocate income earned in 2023 to beneficiaries rather than the trust itself by making a distribution within the first 65 days of the subsequent tax year.
Complex Trusts Only:
Please note this special rule only applies to trustees of “complex” trusts that file their own trust income tax return. This rule does not apply to a standard revocable living trust or other “grantor” style trusts where income is already reported on your individual income tax return.
Deadline Approaching:
The deadline for making decisions under the 65-day rule is fast approaching. Distributions must be “paid or credited” by March 5th, 2024 in order for 2023 taxable income to be passed out to beneficiaries.
Tax Implications:
Trusts have compressed tax brackets and reach the maximum tax bracket at $14,450 of taxable income. Beneficiaries are often in lower tax brackets so by taking advantage of the 65 day rule and distributing income to the beneficiary it may result in a lower overall tax burden if the beneficiary is not in the maximum tax bracket.
Distributions need to actually occur to meet the requirements of the 65 day rule. If your intent as trustee is not to distribute assets to the beneficiary but rather keep the assets within the trust, you may not want to take advantage of this rule, despite the potentially higher tax burden.
If you have any questions or concerns regarding the 65-day rule or would like assistance in navigating this process, please do not hesitate to contact us. Our team is here to support you in ensuring that your tax strategies align with your goals and objectives.
408-252-1800
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