As Democrats in Congress are still looking for money to pay for their massively reduced social spending agenda, they have made a lot of edits to how it will be secured. In their updated proposal they have set their sights on targeting trusts for tax revenue.
Potential Policy
With these proposed plans in place, someone with a trust who dies while holding an IRA, 410(k), or a small business with more than $200,000 of income would have their trust taxed at the same rate as someone making over $10 million a year. This is a huge disparity and would negatively affect lower earners as a millionaire would need to earn over $10 million to be hit by this tax, while a trust owner would only need to make over $200,000.
Trouble with Trust Taxes
Those who will be inheriting an asset through a trust may be in for a shock, as the tax rates needing to be paid upon these will be substantially higher. A business, making over the $200,000 would be hit with very hefty taxes for a few different reasons; trusts top ordinary level rates begin at a low-income level of $13,050, as well as the 3.8% net investment tax would be applied in addition to the new surcharge producing a tax rate of over 45%.
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