Types of Trusts and Their Tax Treatment

Note: If a child subject to the “kiddie tax” has unearned income in excess of $2,000 for 2014 (adjusted annually for inflation), the excess will be taxed at the parents’ top marginal income tax bracket. State or local law may vary.

  • 1 - Cash contributions may be made to the trust, to be used by the trustee to make premium payments on the life insurance policy. Careful drafting of the trust document is required to qualify the cash gifts for the annual gift tax exclusion.
  • 2 - The annual gift tax exclusion ($14,000 in 2014) is indexed for inflation in increments of $1,000.
  • 3 - Under federal law, the minor must become the owner of the assets no later than age 21.