Trusts have been hit hard this year with two separate taxes. First, a 3.8 percent tax on net investment income as part of the Patient Protection and Affordable Care Act took effect on January 1, 2013. Second, the American Taxpayer Relief Act, which became law on January 2, 2013, increased both income and capital gains taxes. As Forbes reports, these taxes will apply to any non-distributed trust income over $11,950. The use of this threshold has allowed the tax increases to reach individuals who wouldn’t otherwise have been affected by the increases. According to estate lawyer Laurie Hall, “These increases weren’t intended to hit people with income below $200,000, and they will.” Individuals who would like to remove distributable net income from trust accounts to avoid these tax increases have until March 6, 2013 to do so. Any net income distributed during this time period will be treated as distributed in 2012. By doing so, beneficiaries will be able to lock in the lower individual tax rates from 2012. In light of the tax increases, individuals may also choose to completely dissolve existing trusts. The American Taxpayer Relief Act has made permanent the $5 million federal estate tax exemption, so many trusts made exclusively for estate planning purposes are now unnecessary. For expert guidance on how to manage your trust account, call us at 818.956.9200.