Trusts Still Have Time to Reduce 2024 Tax Liabilities by Rick Bazzani, CPA
Posted on February 18, 2025
by
Rick Bazzani
Generally, the taxes you owe depend on the decisions you made before year-end on December 31. However, as you prepare to file your 2024 tax returns, certain trusts and estates may have an additional 65 days in 2025 to reduce their tax liabilities and those of their beneficiaries for the prior year.
Under the Internal Revenue Code’s 65-day rule, calendar-year trusts have until March 6, 2025, to distribute trust income to beneficiaries equal to the greater of the trust’s accounting income or its distributable net income (DNI) for the year and treat those amounts as if they were made on the last day of the previous year. However, most trusts are unable to calculate these amounts and make informed decisions about distributions until after the tax year ends. This rule gives trustees more time to determine this information before distributing trust income to beneficiaries and potentially paying a lower tax rate. Fiduciaries of U.S. trusts must make the actual distribution election trust by their tax filing deadline of April 15, 2025, or September 30, 2025, for returns on an extension.
In 2024, trusts with income at or above $15,200 are subject to a top tax rate of 37 percent plus a 3.8 percent net investment income tax (NIIT). By contrast, this top rate applies to individual taxpayers with income of more than $609,350 or $731,200 for married couples filing joint tax returns. Therefore, the trust may reduce its tax liabilities by moving taxable income to beneficiaries in lower tax brackets who will pay far less tax on those amounts than the trust would be required to pay, even at the same ordinary income tax rates. Once a decision is made, it is irrevocable and effective for the applicable tax year covered by the election.
The 65-day rule is available only to trusts where the trustee can distribute trust income. It does not apply to grantor trusts in which grantors report all trust activity on their individual tax returns, nor does it apply to simple trusts that require fiduciary accounting of income to be distributed annually.
Any decision to apply the 65-day rule to an existing trust requires careful assessments of all the related costs and benefits to the trust, the grantor and the named beneficiaries.
About the Author: Rick D. Bazzani, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he provides individuals and entrepreneurs with a broad range of tax-efficient estate, trust and gift-planning services. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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