The "New" Medicare Surtax on Trusts and Estates

There is a new tax in town. As of January 1, 2013 a 3.8% Medicare surtax may be applied to certain trusts and estates. The surtax does not apply to Revocable Living Trusts during the grantor's lifetime. It does however apply to marital trusts, credit shelter trusts, and certain special or supplemental needs trusts.

This 3.8% tax applies to the lesser of undistributed net investment income and the excess of modified adjusted gross income (AGI) over the highest trust income tax bracket (in 2013 this is $11,950). This tax is in addition to the income tax levied on trust and estate income.

So, for example, if the trust has $20,000 of taxable net investment income, and this were undistributed, the 3.8% tax would be on $8,050 (the difference between the $20,000 and $11,950) since this is the lesser of the two.

The good news is that there are strategies available to minimize these taxes. These strategies will be dependent on how the Trust is drafted and the applicable law. If you want assistance limiting the payment of excess taxes on the inheritance you leave to your loved ones, feel free to contact a Connecticut Trusts Attorney to schedule a consultation. You can reach us at (203) 651-5521.

Categories: Estate Planning, Taxes