Hello...my name is XXXXX XXXXX I am a Certified Public Accountant. I look forward to assisting you with your tax questions related to becoming a beneficiary to an irrevocable trust.
Essentially by being named as a beneficiary of an irrevocable trust there is no tax consequence to you unless you receive a distribution from the irrevocable trust.
Because the Trust is a separate taxpayer, it will ordinarily pay tax on income earned that is retained in the Trust. If all of the income is distributed to the beneficiaries annually, the Trust may pay no federal income tax
. Rather, the income may be taxed to the individual beneficiary or beneficiaries receiving the income. Certain states also require that Trusts administered in their jurisdiction also file a state income tax return.
A properly drafted irrevocable trust will shift the liability for income taxes on the income earned by the Trust assets to the Trust itself, or if the income is distributed, to the beneficiary. (NOTE: With the current high tax income rates to trusts, it is usually advisable to distribute all trust income to the beneficiaries, at least annually, to have the income taxed at the beneficiary’s lower tax rate. Be aware, however, that the income of a beneficiary under the age of 14 may be subject to taxation at the beneficiary’s parents’ tax rates
I hope this helps to address your concerns and answer any questions you have related to becoming an irrevocable trust beneficiary. If I can provide you with any additional assistance, please let me know.
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Shane - CPA