Surtax imposed on investment income of trusts and estates

On Behalf of | Dec 10, 2013 | Trusts

There is a new 3.8 percent federal tax that will be imposed upon net investment income from trusts and estates.  The tax will be applicable to these trusts and estates if the gross income exceeds $11,950. 

While the law actually became effective January 1, 2013, the newly issued final regulations will not go into effect until January 1, 2014.  The additional proposed regulations appear to have come about due to numerous comments received by the IRS.

Concerning trusts and estates, a surtax will be imposed on the lesser of either the undistributed net investment income of the trust, or upon the excess of adjusted gross income from the trust above the “threshold” of the trust.

This is not to suggest that every trust will be affected.  A number of charitable trusts may be excluded depending upon how the trust is set up.  Concerning foreign trusts and estates, the matter remains under study as to how this surtax should be applied.

Many comments concerning the 2012 proposed regulations raised concerns that the regulating of certain items such as Charitable Remainder Trusts was too complex.  Attempts have been made concerning the new rules to alleviate this complexity.

A great deal of planning will need to occur by trustees in Nevada and elsewhere to make certain trusts are in compliance of the laws.  The threshold for triggers of the surtax will be low.  At the same time, considerations as to distributions to trustees must still be done in a careful manner.

Again, the area of trusts and estates has become increasingly complicated.  Because of this, trust administration attorneys may be needed as the overseeing of trusts has become such a difficult task.

Source: Mondaq, “The 3.8 Percent Net Investment Income Tax Final Regulations,” Charles D. Fox, Ronald D. Aucutt, Dennis I. Belcher, W. Birch Douglas, III and Michal Barker, Dec. 9, 2013