Taxation of Trusts

Taxation of trusts involves how income generated by a trust is taxed. Typically, trusts can either be "grantor trusts," where the person who created the trust pays the tax, or "non-grantor trusts," which are taxed at higher rates and must file their own tax returns. Distributions to beneficiaries can affect who pays the tax. Generally, if the trust distributes its income, the beneficiaries report and pay tax on it; if it retains income, the trust itself pays the tax. The rules can vary by jurisdiction, so consulting a tax professional is often advisable for specific situations.