What are the tax implications of establishing a trust?

Establishing a trust in Washington can have a variety of tax implications depending on the type of trust and the circumstances surrounding it. Generally, trusts are taxed as either grantor or non-grantor trusts. Grantor trusts are taxable to the person who establishes the trust, while the income and gains of a non-grantor trust are taxed to the trust itself. A grantor of a trust may be subject to income taxes on any income or gains derived from the trust. In addition, if a trust pays dividends to its beneficiaries, the beneficiaries may be subject to dividend-income taxes. Depending on the type of trust, the state of Washington may also tax the trust income which is distributed to the beneficiaries. In addition to income-tax implications, the establishment of a trust may also have estate-tax implications. Estates may be subject to federal estate tax and possibly state estate tax if the value of the estate exceeds certain thresholds. The estate tax for the state of Washington is calculated by the value of the trust’s assets minus any deductions claimed by the trust. Other potential tax implications to consider when establishing a trust include gift taxes, property taxes, and capital gains taxes. The specifics of taxes vary depending on the type of trust and can be highly complex. It is important to discuss the tax implications of a trust with a qualified attorney or accountant to ensure the trust is structured and managed properly.

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