Revocable Living Trust
 

In 2013, a living trust will be taxed at the rate of 40% on any amount over $12,000. Why would anyone want to lose 40% to the government? Is a living trust no longer a good idea? Thank you.

With a typical revocable living trust, the settlor, in the settlor’s sole discretion, has the right to amend or revoke the trust at any time. Because the settlor retains control over the trust property, federal laws will treat the settlor as the owner of the property and the settlor must report the income on his or her tax return and tax will be paid at that individuals rate.

If the trust is irrevocable a completely different set of rules apply and the income tax rate schedules for trusts will apply. The amount of tax the trust ultimately has to pay is directly related to the type of trust. There are different rules for simple and complex trusts.