An executor or trustee may elect to treat discretionary income distributions to beneficiaries within 65 days of the close of the estate or irrevocable tax year of the non-grantor trust as if such distributions had been made during from the previous tax year. the Election under section 663 (b) is made on a timely filed income tax return for the previous year, is irrevocable, may be for all or only a portion of the distributions during the 65 day period, and is elected on an annual basis.
Using the 65-day rule can be a tax-advantaged strategy given that trusts and estates are subject to compressed tax brackets, where the highest rates reach just over $ 13,050 in 2021, as opposed to individual brackets of $ 523,600 for singles or $ 628,300. if married spouse filing. Thus, trustees can avoid up to 40.8% income tax, including 3.8% tax on net investment income, by distributing income to beneficiaries in significantly lower tax brackets. . With potential new tax legislation on the horizon, including proposed new surtaxes of up to 8% for trusts and estates with income over $ 200,000, the 65-day rule could be even more tax-efficient in the country. to come up.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Justin miller is JD, LL.M., Trust and Estate Practitioner, Certified Estate Planner, Certified Financial Planner. He is a San Francisco-based Partner and National Director of Wealth Planning at Evercore Wealth Management, Adjunct Professor at Golden Gate University School of Law and Member of the American College of Trust and Estate Counsel.
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