Saturday, March 09, 2013

Grantor trusts could affect partial tax on social security earnings, reaching AMT levels

There is something to watch with grantor trusts.  Preliminary conversations with a tax adviser suggests that all the income goes to your personal return.
That means that the Social Security payments would likely push the total income over certain thresholds, making it taxable up to 85%.  Call it a form of accidental means testing if you like.  I can’t say that it would be unfair.  If you have other income, then a social security “pseudo-annuity” payment is just like other income.  You still get the income. 
It could also in some cases push someone over the Alternative Minimum Tax  (at two different points; at the upper point there is “no more exemption”).  Also, what remains in a trust no longer has an AMT floor at all (for 2012) , although it wasn’t very much before.  Check the new Wikipedia tables here
This could still be an evolving story.  

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