Question

regarding the taxation of trusts, which statement is false?

simple trusts are not required to distribute income annually

Generally, trusts are subject to income taxes

Generally, income generated from revocable trusts are taxed to the grantor

Transfers to irrevocable trusts are completed gifts to the trust beneficiaries, generally

Answer 1

• First statement is false.

A simple trust is required to distribute all its income and it cannot accumulate income and cannot set aside income for charitable purposes. Otherwise the trust is a complex trust and not a simple trust.

• The given statement is false.

Trusts are not subject to income tax on income distributed to beneficiaries but it has to pay tax on undistributed income. In case of distributed income, the beneficiary pays the income tax on taxable income.

• The given statement is true.

Trust grantor always first pays the tax on distributions of revocable trust and there is no need for the beneficiary to pay tax.

• The given statement is true.

Man irrevocable trust is a trust which cannot be revoked, altered,changed or amended during the lifetime of grantor. Tranfers to irrevocable trusts are considered as completed gifts to the beneficiaries.