Trusts can accomplish many goalsand, usually, can secure some real tax advantages. Powerful estate planningtools indeed! But take note â€“ ObamaCare may be changing all of that in thepursuit of revenue to pay for the program.
It may not be a game changer,but it may be worth noting that some trusts might get a bit more dinged up thisyear with the new 3.8% surtax on investments created by ObamaCare.
Indeed, the accountants are juststarting to do the math after the IRS staked out its position in a newâ€œtechnical advice memorandumâ€ (see TAM 201317010). Forbes has weighed in on theconsequences of this new TAM in an article titled â€œTough IRS Position Means More Trusts WillGet Hit With New ObamaCare 3.8% Tax.â€
Cutting to the chase, the new3.8% ObamaCare surtax hits investment income, and trusts that own interests inpass-through entities are construed as â€˜passively activeâ€™ (a bitter oxymoron inaccounting-speak) and thereby produce investment income to tax.
To make matters worse, suchtrusts see the tax kick in at a much lower income rate than for an individual.And, to further complicate things, such trusts are not often designed to be â€œactiveâ€entities. A complex plan might involve various trusts with various holdinginterests in companies, and might be targeted at various levels. As you cansee, things can get complicated fast.
Like most matters on the tax(and political) front, it remains to be seen how the year and the tax battlewill be played out. Nevertheless, you should keep an eye on Washington, D.C.,and a hand on your wallet.
For more information on this subject,contact IdahoEstate Planning and schedule aconsultation. Remember,good planning is no accident.