One Last Trust & Estate Planning Opportunity for 2014

January 2015
Author:  Mitch Caddell

Mitch Caddell

Managing Director


Private Client Services

1551 N. Waterfront Parkway, Suite 300
Wichita, KS 67206-6601


Fiduciaries of estates and non-grantor trusts have one last opportunity to manage these entities’ tax liability for 2014. With the complexities of the net investment income tax (NIIT) as well as highly compressed income tax brackets for trusts and estates, fiduciaries can use 65-day distributions to better manage the overall tax burden of both the entity and its beneficiaries.

During the 65-day period following the end of the year, fiduciaries can compute their fiduciary accounting income and distributable net income and compare those amounts to what they have distributed for the year. Distributions then can be made to level out or otherwise manage what the trust or estate pays in taxes by making a 65-day distribution under Internal Revenue Code Section 663(b). For 2014, the distributions need to be made by March 6, 2015.

The fiduciary has the option to distribute more than it needs to pay out from 2014 income, offering a head start on distributions for 2015. Distributions already made in January and February 2015 also can be included as a part of the 65-day amount elected back to 2014. When income tax returns are filed for 2014, the fiduciary will elect how much applies to 2014 or 2015.

Fiduciaries pay the 39.6 percent tax rate when taxable income exceeds $12,150 for 2014, compared to a married taxpayer filing jointly who hits this same rate bracket at $457,600. The NIIT also is levied above $12,150 for trusts, compared to $250,000 for married taxpayers filing jointly. This huge disparity allows fiduciaries of trusts with lower-income beneficiaries to take advantage of shifting income from a higher tax bracket in the trust to a lower tax bracket at the individual level.

The election is simple to make. On Page 2 of Form 1041, the fiduciary must check the 663(b) election box. In addition, many taxpayers also will attach a statement indicating the amounts paid under the 65-day rule, although this is not required. The election is made on a timely filed Form 1041, including extensions, and becomes irrevocable once the due date for the returns has passed.

For more information about 65-day distributions or other trust and estate planning opportunities, please contact your BKD advisor.

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