Trusts can accomplish many goals
and, usually, can secure some real tax advantages. Powerful estate planning
tools indeed! But take note – ObamaCare may be changing all of that in the
pursuit of revenue to pay for the program.
It may not be a game changer,
but it may be worth noting that some trusts might get a bit more dinged up this
year with the new 3.8% surtax on investments created by ObamaCare.
Indeed, the accountants are just
starting to do the math after the IRS staked out its position in a new
“technical advice memorandum” (see TAM 201317010). Forbes has weighed in on the
consequences of this new TAM in an article titled “Tough IRS Position Means More Trusts Will
Get Hit With New ObamaCare 3.8% Tax.”
Cutting to the chase, the new
3.8% ObamaCare surtax hits investment income, and trusts that own interests in
pass-through entities are construed as ‘passively active’ (a bitter oxymoron in
accounting-speak) and thereby produce investment income to tax.
To make matters worse, such
trusts see the tax kick in at a much lower income rate than for an individual.
And, to further complicate things, such trusts are not often designed to be
“active” entities. A complex plan might involve various trusts with various
holding interests in companies, and might be targeted at various levels. As you
can see, things can get complicated fast.
Like most matters on the tax
(and political) front, it remains to be seen how the year and the tax battle
will be played out. Nevertheless, you should keep an eye on Washington, D.C.,
and a hand on your wallet.
Reference: Forbes (April
29, 2013) “Tough IRS Position Means More Trusts Will
Get Hit With New ObamaCare 3.8% Tax”