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Will your child need to pay taxes on a trust?

When you set up a revocable trust for your child in Miami, you may not always consider the tax implications. It is important to consider how this trust will be taxed, though, especially if you want this trust to be your child’s inheritance.

If you establish a revocable trust, there are several different things that can happen after your death. Zacks Investment Research says that you may choose to have your child receive all the assets. This means that the trust would close. Sometimes, though, you may want your child to receive the assets over a number of years instead of all at once. In this situation, you may want to arrange for the trust to continue after your death. The trust can usually become either a complex or simple trust and these kinds are taxed differently.

If a trust turns into a complex trust after your death, then it can retain some assets each year while dispensing other assets to your child. Additionally, your child can usually receive resources from capital gains. Assets from the trust usually are considered income and your child will generally need to report these on his or her tax return. If your child receives money from capital gains, he or she does not typically need to pay taxes on this income. This is because the trust is taxed for this money.

You may also choose to turn a trust into a simple trust after you die. In this situation, any income earned by the trust each year will usually need to be given to your child that same year. Your child will generally need to report this money as income every year and pay taxes for it.

This information is intended to educate. It should not be used in place of legal advice.

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