What is the tax treatment of trusts?

Trusts are a common estate planning tool used to pass wealth from generation to generation. In Illinois, trusts are subject to taxation, but the rules can be complicated. In general, trusts are taxed on investment income at the trust level, not the beneficiary level. This means that the trust pays taxes on any kind of income it receives, such as dividends, interest, or capital gains. The trustee of the trust is responsible for filing the appropriate tax returns and paying the taxes due. However, some trusts may be eligible for special tax treatment. If the trust is a qualified charitable trust, for example, it may be exempt from taxation. Some trusts may also be eligible for a tax deduction or credits, depending on their purpose and other factors. Income passed through to the beneficiary of the trust may also be taxed. The beneficiary may need to file a tax return and pay taxes on any income received. Any principal or capital gains from the trust are not taxable in Illinois. Lastly, there may be inheritance taxes due when the beneficiary of the trust receives the assets. The inheritance tax rate in Illinois ranges from 0 to 16 percent depending on the value of the estate. In general, estates valued at less than $4 million are exempt from the inheritance tax.

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