Estate taxation - For the vast majority of Missouri residents, estate taxes are not currently a concern.  The current estate exemption is $5,000,000.  That amount is in effect from January 1, 2011 through December 31, 2012.  Clearly that amount exceeds most individual's and couple's net worth.  That doesn't mean making arrangements aren't important.  If you don't make plans for the disposition of your property upon your death, rest assured the government has!

How are trusts taxed? - In the usual circumstance of a revocable living trust where the grantor acts as trustee and primary beneficiary, the trust is treated by the IRS as an integral part of the grantor's property.  The grantor taxpayer files one personal return, whether alone or jointly with a spouse.

In a more complicated arrangement where the grantor and current beneficiaries are not identical, the trust must have its own taxpayer id and file a trust return form 1041.  If the trust retains income, then after offsets for expenses and a very small exemption, the trust pays tax.  The rate climbs to the maximum very quickly encouraging the distribution of income to the beneficiaries.

The trust must also report on forms K-1 the actual payment of income to beneficiaries who will report the income on their personal return and pay tax individually at their marginal rate.

This is obviously a very simple overview.  Consultation with your tax professional is mandatory for a complete understanding of trust taxation.

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