Prince Law Firm
Call For A Consultation
Toll Free 866-383-1125
Local 248-419-1968

How assets in a trust are taxed

Income that is generated by a trust can either be kept in the trust or distributed to beneficiaries. In some cases, a Michigan trustee will have the ability to make distributions as he or she sees fit. However, it is also possible that the trust itself will limit the actions that a trustee is allowed to take. For instance, the document may not allow distributions to be made unless they are for educational purposes.

A trustee may also be barred from distributing money or other items to a beneficiary until that person reaches a certain age. Trustees who deviate from what they are allowed to do could be violating their fiduciary duty to the beneficiaries. They could be held personally liable for any damages a beneficiary experiences because of this breach. Trusts typically pay more in taxes compared to individuals, which is why it can be beneficial to distribute funds to beneficiaries sooner rather than later.

A trust is subject to a 37% tax rate on income totaling more than $12,950 in a given year. An individual will not reach the 37% tax bracket until he or she earns more than $518,400 in a given year. Therefore, it may be possible for beneficiaries to keep more of their inheritance by distributing it to them as opposed to keeping it in the trust.

For some, trusts can be an effective estate planning tool. It may be possible to shield assets from creditor claims or from being divided in a divorce. Holding assets in a trust might also reduce the size of an estate, which can reduce the amount of estate tax a person must pay. An attorney may be able to explain the potential benefits of a trust as well as take steps to help create one.

No Comments

Leave a comment
Comment Information

How Can We Help You?

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Our Office

Prince Law Firm
800 W. Long Lake Road, Suite 200
Bloomfield Hills, MI 48302

Fax: 248-865-0640
Bloomfield Hills Law Office Map

Connect with us

  • Facebook
  • Twitter
  • Linkedin
VISA | Master Card | American Express | Discover Network