Tax Rates Could Influence How A Trust Is Designed

Louisiana residents who receive money from a trust must generally account for it on their tax return. If money held in a trust generates revenue that remains inside of it, the trust will be responsible for paying taxes on those funds. As a general rule, the tax bracket for individuals is lower than the tax bracket occupied for a trust. Trusts pay a 37% tax rate if they generate annual income exceeding $12,950.

Therefore, it can often be beneficial to distribute funds to an individual who is likely to be in a lower income tax bracket. However, the trustee is obligated to follow the trust’s instructions when determining how to allocate assets. In some cases, he or she may be compelled to keep income in a trust until a beneficiary reaches a certain age. In others, the trustee may only be able to distribute funds to pay for a child’s education or for other limited reasons.