Complex Trusts for Tax Purposes
A complex trust is essentially the opposite of a simple trust. To be classified as a complex trust, it must do at least one of three activities within the year:
Estate properties are often transferred into a complex trust. Here, it is the trustee’s responsibility to make sure all estate matters are managed in addition to distributing its assets as stipulated in the trust instrument. Estate management responsibilities include estate tax payments, bill payments, and maintenance expenses.
Simple vs Complex Trust
So what’s the difference between a simple and a complex trust? The fundamental difference is that any trusts that do not meet the requirements of a simple trust are classified as a complex trust.
In a simple trust, a trustee is required to do nothing else but to make sure the trust property is distributed at a specified time as stated in the trust. A trustee in a complex trust is given a mandate to manage the affairs of the trust property, including making investment decisions for the benefit of the trust beneficiaries. In a simple trust, all net income generated by the trust property is distributed on a yearly basis. Any accumulated interest is distributed once an established period had passed. A complex trust, on the other hand, may retain income from investments but the funds may be distributed as long as the terms and conditions of the trust are met.
- The trust must retain some of its income and not distribute all of it to beneficiaries.
- The trust must distribute some or all of the principal to the beneficiaries.
- The trust must distribute some funds to charitable organizations.
Estate properties are often transferred into a complex trust. Here, it is the trustee’s responsibility to make sure all estate matters are managed in addition to distributing its assets as stipulated in the trust instrument. Estate management responsibilities include estate tax payments, bill payments, and maintenance expenses.
Simple vs Complex Trust
So what’s the difference between a simple and a complex trust? The fundamental difference is that any trusts that do not meet the requirements of a simple trust are classified as a complex trust.
In a simple trust, a trustee is required to do nothing else but to make sure the trust property is distributed at a specified time as stated in the trust. A trustee in a complex trust is given a mandate to manage the affairs of the trust property, including making investment decisions for the benefit of the trust beneficiaries. In a simple trust, all net income generated by the trust property is distributed on a yearly basis. Any accumulated interest is distributed once an established period had passed. A complex trust, on the other hand, may retain income from investments but the funds may be distributed as long as the terms and conditions of the trust are met.