Making Trust Distributions to Reduce Overall Income TaxesMaking Trust Distributions to Reduce Overall Income Taxes

In the aftermath of the American Taxpayer Relief Act of 2012 (ATRA)¹ and the Tax Cuts and Jobs Act (TCJA),² the focus for many estate planners and their clients is more on income tax planning than transfer tax planning. ATRA and TCJA have yielded, among other things, historically high basic exclusion amounts (currently $11.4 million), indexed for inflation, portability, a relatively low estate, gift and generation-skipping transfer tax rate (40 percent), a relatively high top marginal income tax rate on ordinary income (37 percent) and an increased (from 15 percent) top tax rate on capital gains and qualified dividends (20 percent).

The 37 percent rate applies, in the case of single individuals, starting at taxable income above $510,300 a...