Complex Trust and Estate

Complex Trust and Estate

You’ve worked hard for everything you have. Ensure that you are prepared to transfer your wealth, achieve philanthropic goals, minimize taxes, maintain privacy, and most importantly, protect your assets. Our team and our strategic partners are specifically assembled to provide the high-level education you deserve and maximize the management of your affairs should the day come you can no longer do so.

A “Simple Trust” requires the distribution of all income.

A “Complex Trust” gives the Trustee discretion to either distribute the income or to hold the income within the trust.

The designation of “complex” means that the trustee has more discretion, not necessarily that the terms are more complicated.  A complex trust can pay out some but not all of its assets to beneficiaries leaving the remaining amount in the trust as the responsibility of the trust to pay taxes on.

Trusts & Estate Planning

Trusts can be used inside an estate plan to perform a number of functions:

  • Pass on specific assets to your chosen beneficiaries
  • Stay out of probate
  • Manage estate and gift tax liability
  • Protect assets from creditors
  • Ensure that a special needs beneficiary is cared for when you’re gone
  • Receive the proceeds of a life insurance policy when you pass away

Simple Trust:

To be classified as a simple trust, the trust must meet certain criteria set by the IRS:

  • Distribute income earned on trust assets to beneficiaries annually
  • Make no principal distributions
  • Make no distributions to charity

With this type of trust, the trust income is considered taxable to the beneficiaries.  The trust reports income to the IRS annually and it’s allowed to take a deduction for any amounts distributed to beneficiaries. The trust itself is required to pay capital gains tax on earnings.

Complex Trust:

A complex trust must do one of the following each year:

  • Refrain from distributing all of its income to trust beneficiaries
  • Distribute some or all of the principal assets in the trust to beneficiaries
  • Make distributions to charitable organizations

Any trust that doesn’t meet the guidelines to qualify as a simple trust is considered to be a complex trust. Complex trusts can take deductions when computing taxable income for the year. This deduction is equal to the amount of any income the trust is required to distribute for the year.

There are also some other rules to keep in mind with complex trusts. First, no principal can be distributed unless all income has been distributed for the year first. Ordinary income takes first place in the distribution line ahead of dividends and dividends have to be distributed ahead of capital gains. Once those conditions are met, then the principal can be distributed. And all distributions have to be equitable for all trust beneficiaries who are receiving them.