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Are you a fiduciary of a trust or estate? With tax season approaching, you still have time to improve your tax position – until March 6, 2023, in fact. 

But why March 6, 2023? That is the deadline under the 65-day rule for trusts. Keep reading to learn more about the 65-day rule for trusts and how it can financially benefit you.

What is the 65-Day Rule for Trusts?

The U.S. tax code gives trust and estate fiduciaries the option to make additional beneficiary distributions up to the 65th day of the new year, which is – you guessed it – March 6, 2023. Any distributions made up until March 6, 2023, can be treated as made in 2022 – providing significant tax savings.

This 65-day window can give estate and trust fiduciaries a great planning opportunity – if used properly.

To Which Estates and Trusts Does the 65-Day Rule Apply?

The 65-day tax election rule applies only to estates and non-grantor trusts (often called “complex trusts”). Simple trusts – whether grantor or non-grantor – do not qualify for the 65-day rule election. Simple trusts must distribute income to beneficiaries annually whereas a complex trust must refrain from distributing income to its beneficiaries, distribute some or all of the trust’s principal assets to beneficiaries, or make distributions to charitable organizations.

How Does a Fiduciary Make a 65-Day Rule Election?

To elect the 65-day rule, the fiduciary must make a 663(b) election by checking the appropriate box on line 6 of IRS Form 1041 (which is the trust’s fiduciary income tax return). This election must be selected timely (by the deadline or any extension). 

Once this election is made, it’s irrevocable.

The Benefits of the 65-Day Rule Election

Here are some benefits of making the 65-day rule election:

  • You can distribute the right amount of assets necessary to optimize your taxes
  • Doing so can lower your tax rate with the right distribution amount
  • These distributions may also help with your Medicare surtax planning (which 3.8 percent Medicare surtax is assessed on a trust’s undistributed “net investment income” – such as interest, capital gains, rental income, or dividends)

Next Steps

If you are a fiduciary of an estate or complex trust, and you’re closing out your 2022 tax year, you’ll want to:

  • Review your trust’s income, expenses, and distributions
  • Review any tax consequences regarding the trust’s income, expenses, and distributions
  • Review any brokerage statements and Form 1099s
  • Discuss the tax benefits of electing the 65-day rule with an experienced trust attorney, understanding your financial situation

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        Setting Up a Trust in Southeastern WI

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