What are the tax implications of establishing a trust?

In New Mexico, the tax implications of establishing a trust depend on the type of trust you create. For example, federal income taxes are typically not due on the income generated by a revocable trust unless the trust is treated as a separate taxpaying entity. An irrevocable trust, however, may be subject to federal income taxes. Additionally, a trust may be subject to the New Mexico Gross Receipts Tax (GRT). The GRT tax applies to any trust income derived from activities performed within New Mexico, such as sales of goods and services. When it comes to estate taxes, New Mexico does not currently collect a state estate tax. However, depending on the size of the estate, federal estate taxes may be due. It is important to note that when a trust is funded with assets owned by the grantor prior to death, the value of those assets may be subject to estate taxes. Finally, when establishing a trust, the grantor may need to file certain forms with the Internal Revenue Service for tax purposes. Additionally, the trust itself may need to file tax returns with the New Mexico Taxation and Revenue Department annually. In sum, the tax implications of establishing a trust in New Mexico depend on the type of trust and the assets used to fund the trust. It is important to consult with a trusted legal professional when creating a trust in order to ensure that all of the tax implications are properly considered and followed.

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