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The “65-Day Rule”- Income Tax Relief for Complex Trusts and Estates Act Now, March 5 Deadline


As a trustee of a complex trust or personal representative of an estate, you should be concerned about the amount of income tax owed by that trust or estate. Complex trusts and estates for 2014 reach the maximum marginal tax rate of 39.5% at $12,150 and are also subject to the net investment income tax of 3.8% at $12,150. Is there something that can be done now to reduce the income tax in 2014 for a complex trust or estate? The answer is yes: you can make a 65-day election by March 5, 2015.

The 65-day election allows the trustee or personal representative to treat distributions to the beneficiary made in the current year as if they were made in the previous year. For example, a distribution to a beneficiary made on January 25, 2015 can be treated as being made in the tax year ending December 31, 2014. Distributions to beneficiaries of complex trusts and estates reduce the taxable income of the trust or estate because the income “flows out” with the distribution. The overall tax that is paid between the trust/estate and beneficiary is often reduced because the beneficiary is usually in a lower income tax bracket and often not subject to the net investment income tax.

If you are interested in making a 65-day election what needs to be done? First, determine if there is taxable income in the complex trust or estate for 2014. If there is, establish whether a discretionary distribution can be made to a named beneficiary and if so, whether the beneficiary is in a lower tax bracket such that the overall tax paid by the trust/estate and beneficiary will be reduced. Finally, the beneficiary must be willing to pay the additional tax. If these conditions are met, the 65-day election should be considered.

To make the election, you must make the beneficiary distribution by March 5, 2015. Notify your tax professional preparing the fiduciary income tax return that you are making the election, and let them know the amount of the 2015 beneficiary distribution you want the election to cover.

For questions, assistance, or requests for additional information please contact our estate tax professional, Gary Holcomb at 425-289-7636 or gholcomb@bpcpa.com