Electing the 65-Day Distribution Deduction
Monday, February 18th, 2019  
         The Tax Cuts and Jobs Act introduced broad changes to the tax code. Trust and estates have new tax rates and brackets and have lost miscellaneous deductions. In this newsletter we will discuss the 65-Day distribution deduction which can help trust and estates avoid taxable income at their elevated tax brackets.
         As can be seen in the tables above, the tax rates for trust and estates did drop slightly, but are still very high. Combined with the loss of miscellaneous deductions (such as investment fees), the overall effective tax rates are largely unchanged.

         One strategy we recommend to all our estate and complex trust clients to combat these high tax rates is to take advantage of the 65-Day distribution deduction. This deduction is allowed for any amount that is paid or credited to a beneficiary within the first 65 days following the close of the tax year for the estate or complex trust. For clients with a December 31st year end, this means paying or crediting this distribution by March 5th.

         Using this strategy allows estates and complex trusts to zero out their taxable income every year, so long there is cash available to be distributed. This can be an effective tool to minimize the combined income tax burden of the trust or estate and the beneficiaries and to avoid paying taxes at the elevated trust and estate rates.  

         If you would like to know more about this deduction, please contact us at (970) 223-2727.