When it comes to trusts, there are two types: minor and major. Minor trusts are those that have less than $5,000 in assets, while major trusts are those with more than $5,000 in assets.
This blog post will discuss minor trusts and how they are taxed. Typically, minor trusts are taxed as income, which can be a bit of a burden for the trust owner.
However, there are ways to minimize the tax burden and make sure that the trust is run efficiently. Stay tuned for more information!
Minor Trust Taxes
Minor trusts are taxed as income at the beneficiary level. This means that the income of the trust is taxed at the beneficiary's marginal tax rate. These types of trusts are taxed as if they were an individual's own money.
The biggest problem with this is it pushes the tax bracket up to a higher marginal rate which means more taxes.
For example, if the trust income is $20,000 and the beneficiary's marginal tax rate is 30%, then the taxes payable on the trust income would be $6,000.
Minimizing the Tax Burden
The good news is that there are ways to minimize the tax burden of a minor trust.
One way to do this is to make sure that the trust is run efficiently and in such a way that minimizes taxes.
Another way to reduce the tax burden is to distribute the assets of the trust wisely. For example, by investing in assets that produce little or no taxable income, such as GICs or T-bills, the trust's taxable income can be minimized.
Similarly, you may also minimize taxes by investing in assets that produce little or no taxable income.
Finally, the annual exclusion for gifts can be used to shelter some of the assets of the trust from taxation.
We’re Here to Help
If you need help setting up a minor trust, we’re here to help. Reach out with any questions you may have right away.
Call Legacy Enhancement Trust today at (888) 988-5503 to learn how we may assist you!