Understanding Trust Income: What It Is and Why It Matters
Many people believe trusts are only for the ultra-wealthy, but they're actually valuable planning tools for many families. As a trust attorney serving clients throughout Long Island and New York, I often find that understanding trust income is a key concern for both trustees and beneficiaries.
What Is Trust Income?
Simply put, trust income is the money generated by assets held in a trust. This typically includes:
Interest from bank accounts or bonds
Dividends from stocks
Rental income from properties
Profits from selling investments
This income is separate from the principal (or corpus) of the trust, which is the original property placed into the trust.
Who Gets the Trust Income?
The answer depends on the type of trust and what the trust document says:
Revocable Trusts: The person who created the trust (the grantor) usually receives all income during their lifetime. After they pass away, the trust becomes irrevocable and distributes income according to its terms.
Irrevocable Trusts: These often designate specific people to receive income (like a surviving spouse) while preserving the principal for others (like children or grandchildren).
Example: Maria receives $5,000 monthly from her late husband's trust to support her needs, while the principal remains intact for their children to inherit later.
How Trust Income is Taxed
Trust taxation is often misunderstood but critically important:
When income goes to beneficiaries, they pay the tax on their personal returns.
When income stays in the trust, the trust itself pays the tax—often at higher rates.
New York has its own specific rules about trusts and taxation that can affect your bottom line.
The Trustee's Responsibilities
Whether you're serving as trustee or have appointed someone else, the responsibilities include:
Investing trust assets appropriately
Keeping accurate records
Filing annual tax returns
Distributing income correctly
Trustees must balance the needs of those receiving income now versus those who will inherit the principal later.
How Our Firm Can Help
At Reena Gulati PLLC, we assist clients with:
Creating trusts with clear income provisions
Advising trustees on income management
Helping beneficiaries understand their rights
Resolving disputes about trust income
Please call our office @ 516-570-4016 to schedule a meeting about your trust. We'll help you understand your options and develop a plan that works for your family.
