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Tax Characteristics of Trusts

Lawrence H. Nemirow April 5, 2022

• Simple Trust - required to distribute all of its income, currently to its beneficiaries; no principal distributions, no transfers to charities allowed

• Complex Trust - authorizes the trustee to either distribute or accumulate the trust’s income; principal may be distributed; transfers to charities are allowed

• Grantor Trust - remains in the control of the grantor while the grantor is alive. The “alter ego” of the grantor

• Most trusts (except grantor trusts) are separate taxpayers

• Gifts made to a trust are treated as gifts made to the trust beneficiaries

• The $15,000 (for 2021) annual exclusion from gift tax is available for gifts or present interests in property made to an unlimited number of U.S. Citizen donees

• Gifts to U.S. citizen spouse: Unlimited marital deduction

• Annual exclusion for gifts to a non-citizen spouse: 2021: $159,000

• Married persons (if U.S. citizens) may split gifts (IRC 2513)

• When property is transferred to a trust by a lifetime gift, the income tax basis and the holding period of the donor carries over to the trust