Is income from a marital trust taxable?
A Marital Trust, or as it is sometimes called, the “A Trust,” is an Irrevocable Trust designed to hold the deceased spouse’s assets that exceed the amount that can be sheltered from death taxes. The Marital Trust assets are not taxed at the first spouse’s death, but they are part of the second spouse’s estate.
Does a trust generate income?
If a trust pays out a portion of its assets as income, or holds assets that appreciate or generate interest income such as real estate or stocks, then the person receiving the money must pay income taxes. If the income beneficiary is a charity, the trust will receive an income tax deduction.
Who is an income beneficiary of a trust?
An income beneficiary is a person to whom the net income of a trust is or may be payable. Income beneficiaries are identified in the trust agreement of a trust. This person is only entitled to the trust income, not its principal. The principal will eventually be transferred to one or more remainder beneficiaries.
Who is the beneficiary of a marital trust?
Within the framework of a marital trust, the surviving spouse must be the sole beneficiary who can receive trust assets during his or her lifetime. Trustee: The person, persons or organization that manages trust assets. The trustee transfers property to the beneficiary.
How are income beneficiaries and principal of a trust different?
Many times, the people who will receive the income of the Trust are different from the people who will receive the principal of the Trust. For example, a Trust may require that all income be distributed to a surviving spouse, but none of the principal.
Can a surviving spouse receive income from a trust?
The surviving spouse can receive income from the trust as well as principal. The trust grantor can give the trustee the right to transfer some of the trust’s principal or initial investment to the surviving spouse if a special need arises.
Who is the income beneficiary of X Trust?
Assume you are the trustee of X Trust. The income beneficiary is the surviving spouse who wants you to make significant distributions to him or her and invest trust assets in his or her business.
Can a trust have both income and remainder beneficiaries?
This is often called a “QTIP” trust under the IRS rule that allows such a trust to qualify for the marital deduction. But many trusts of all sorts have both income beneficiaries and remainder beneficiaries and it is important to note that such trusts may be revocable by the trustor or not.
What happens to the money from a marital trust?
Under these assumed facts, every $10,000 amount distributed from the marital trust to the wife’s descendants will result in a transfer tax savings of $5,500 upon the surviving spouse’s death. When considering making distributions from a marital trust, state law must be taken into account.
How does a trust work for the surviving spouse?
During the surviving spouse’s lifetime, the property or assets in the trust “trust principal” (or “trust res”) are intended to generate income. That income is then distributed to the trust’s beneficiaries, with the principal remaining intact and continually generating income.
Assume you are the trustee of X Trust. The income beneficiary is the surviving spouse who wants you to make significant distributions to him or her and invest trust assets in his or her business.