Managing a Wisconsin trust requires meticulous attention to tax obligations. Otherwise, the trust could be subjected to state and federal taxes. Both trustees and beneficiaries need to understand these tax implications to comply with regulations and make informed financial decisions. Here is a comprehensive overview of the key tax implications of a Wisconsin trust.
Income Tax
When it comes to federal income tax, trusts are considered separate legal entities. To comply with tax regulations, any trust with a gross income of $600 or more in a tax year must file a Form 1041, U.S. Income Tax Return for Estates and Trusts. The trust must also pay taxes on its taxable income at the applicable tax rates. In Wisconsin, trusts must also file a separate state income tax return.
Estate Tax
The federal estate tax applies to estates with a gross value that exceeds the federal exemption amount. For the 2023 tax year, the exemption amount is $12.92 million per individual or $25.84 million for married couples. However, before paying these taxes, make sure to seek advice from a tax professional or estate planning attorney so that you can adhere to the latest laws and exemption thresholds. Wisconsin does not have an estate tax, meaning there is no state-level estate tax obligation.
Gift Tax
The federal gift tax applies to property transfers that occur while a person is alive, but there are some exceptions and exclusions. For the 2023 tax year, the current federal gift tax exemption is $12.9 million per person ($25.84 million for married couples). Remember that gift tax laws and exemption amounts are subject to change. Wisconsin follows federal rules for gift tax considerations and does not have its own state-level gift tax.
Generation-Skipping Transfer Tax (GSTT)
The federal GSTT is a tax applied to transfers made to grandchildren or beneficiaries more than one generation below the transferor. It has its own exemption amount, similar to the federal estate and gift tax. Wisconsin does not have its own generation-skipping transfer tax, so the federal GSTT rules would apply to any applicable transfers.
Property Tax
Property taxes are usually handled on the state side, not the federal. A trust that owns real estate in Wisconsin may be subject to property taxes. The specific property tax implications would depend on the local jurisdiction where the property is located.
Learn About the Tax Implications of Your Wisconsin Trust
Understanding the various tax implications of a Wisconsin trust can help you navigate federal and state taxes. With proper tax planning and adherence to tax obligations, a Wisconsin trust can effectively manage its tax liabilities while maximizing its financial benefits. Contact an estate planning attorney who can provide tailored advice based on your specific circumstances to ensure accurate and up-to-date information.If you want to learn more about taxes and your Wisconsin trust, contact the Collins Law Firm. We provide comprehensive estate planning, administration, business, and elder law services. Our law firm proudly serves Southeastern Wisconsin and the Milwaukee area. Schedule your free, confidential consultation today by contacting us or calling (414)-207-6292.