Hi, I want to talk to you about two types of trusts
Lee Phillips here
I'm a lawyer. Don't hold that against me, okay?
The normal types of trust that you think of are irrevocable and revocable
those are the two categories
but within each one of those categories
there's another type of trust.
It's called a simple trust
or a complex trust.
A simple trust is a trust that has to pay
all of its income
its profit
yeah ,I mean the trust has assets in it
it might be bank accounts
or whatever, they get interest
that's profit.
In the simple trust
the trust has to pay all of its profit
out of the trust
so that it doesn't accumulate money.
What we're really interested in is
where's the tax?
So in the simple trust
it passes all the money down to the beneficiaries
and then the beneficiaries have to pay the tax on it.
The opposite is a complex trust.
In a complex trust
the trust can actually accumulate money
and build the accounts
and everything is within the trust
you like that because if it's an irrevocable trust
which is more likely to be complex
than a revocable trust
usually revocable trusts are simple trusts
but if it's a complex trust
then it accumulates money and it becomes its own taxing entity
if it's irrevocable it has to have its own tax ID number
now it may be simple
and then it has to pay everything out each year
and then it has to file tax returns showing that everything is out
a trust's tax return is a 1041
you guys are a 1040
your trust is a 1041
so if it pays everything out is still files a tax return
revocable trust or excuse me irrevocable trust
files the tax return
and it just writes zero
all the way down
don't forget to file a tax return though
if it's accumulating money
then the tax is actually paid by the trust
you don't want the trust to have to pay the tax
and we have a YouTube on taxation of trusts
and tax rates and trusts
but the $64 question, the real kicker is
your trust at like $12,500 suddenly hits the highest tax rate 37%
under Trumpy
so you're paying the highest tax rate
at $12,500 in income?
you don't pay that as an individual until you get to hundreds of thousands of dollars
$400,000ish type stuff
so you're paying 37%?
I don't think so.
The last thing you want to do is have your trust
accumulate $100,000.
So the complex trust
allows the trust
it is a trust which is written
so that it can accumulate money
a simple trust is written
so that it has to pay the money out
and it'll have language in it that says all the income must be paid out at least annually
or quarter annually or whatever it is
to the beneficiaries
that's a simple trust
the other trust is the complex trust
it accumulates money
it pays its own taxes
you don't want that.
Even if it accumulates the money make sure
that it kicks it all out so that
the individual beneficiaries pay the tax at their rate
not the trust tax of 37% at $12,500.
So simple trust
complex trust
two types of trusts.