Trust Tax Rates and Exemptions for 2025

A trust is a legal entity that allows you to transfer assets to the management of a trustee. Trusts can serve different purposes in your financial plan. For example, you might place assets in trust to fund your child’s college education, or you may be interested in using a personal residence trust to avoid estate taxes. Taxation is a key consideration when deciding which type of trust to establish. Learn how trust tax rates and exemptions work.

A financial advisor could help you find answers to your trust and taxation questions.

What Is a Trust?

A trust is a legal arrangement that allows you, the grantor, to transfer the management of assets to a third party, known as a trustee. The trustee has a fiduciary duty to manage trust assets in the best interests of you and your beneficiaries. There are three main kinds of trusts:

Simple trust: This is the most basic and common. It holds assets and distributes all of the income that it makes off those assets to the trust’s beneficiaries. It does not distribute any of its principal.
Complex trust: Generally defined as “not a simple trust,” this trust is considered complex if it distributes less than all of its earned income in a year; if it distributes any of its principal; or if it makes distributions to charities as well as named beneficiaries.
Grantor trust: This trust is managed by the individual who established it. They exert a potentially high degree of control over the trust’s assets depending on how the trust was established.

Trusts can also be categorized as revocable or irrevocable. A revocable or living trust is a trust that can be changed during the grantor’s lifetime. For example, you could change the terms of the trust, add or remove beneficiaries or terminate the trust altogether. Irrevocable trusts are permanent and generally don’t allow changes.

How Trusts Are Taxed

How a trust is taxed depends on its type, structure and the income it earns.

With grantor trusts, like revocable living trusts, all income is reported on the grantor’s personal tax return. With non-grantor trusts, like irrevocable simple and complex trusts, the trust itself pays taxes on its income and assets.

Trusts may also owe federal, state and local taxes, though state rules can vary. Here we’ll focus on federal trust tax rates and exemptions.

Trust distributions can be taxable, depending on the trust and the type of distribution. For example, distributions from a revocable trust are usually not taxable to the beneficiary, since the grantor pays the tax. Distributions from an irrevocable trust, however, may be taxable if they include trust income passed to the beneficiary.

2025 Income Tax Rates for Trusts

For 2025 taxes (which you’ll file in 2026), the federal government taxes trust income at four levels. These tax brackets also apply to all income generated by estates. Below is a breakdown of these rates and brackets:

$0 to $3,150: 10%
$3,150 to $11,450: 24%
$11,450 to $15,650: 35%
$15,650+: 37%

The standard rules apply to these four tax brackets. So, for example, if a trust has $10,000 in income during 2025, it would pay the following taxes:

10% of $3,150 (all earnings between $0 – $3,100) = $315
24% of $6,850 (all earnings between $3,101 – $10,000) = $1,644
Total tax due = $1,959

Note that these brackets were increased from their previous amounts in 2024 (filed in 2025). Below are the 2024 tax brackets for trust income:

$0 – $3,100: 10%
$3,100 – $11,150: 24%
$11,150 – $15,200: 35%
$15,200+: 37%

Trusts may be required to make quarterly estimated tax payments throughout the year, against any expected tax liability. For 2025, a fiduciary of an estate must make estimated payments if the estate will owe $1,000 or more in taxes, after subtracting withholding and credits. Trustees must file estimated taxes using IRS Form 1041-ES.

2025 Long-Term Capital Gains Tax Rates for Trusts

Capital gains tax is owed when you sell an investment for more than you paid, with lower rates for long-term gains.

Capital gains tax applies when you sell investments for more than your basis, or what you paid for them. Short-term capital gains from assets held 12 months or less and non-qualified dividends are taxed according to the above income tax rates. However, qualified dividends and capital gains on assets held for more than 12 months are taxed at lower rates called the long-term capital gains rates.

For trusts and estates, there are three long-term capital gains brackets for 2025 (which you’ll file in 2026):

$0 – $3,250: 0%
$3,250 – $15,900: 15%
$15,900+: 20%

These brackets are higher than the amounts that were set for 2024 (filed in 2025), which are below:

$0 – $3,150: 0%
$3,150 – $15,450: 15%
$15,450+: 20%

Once again, these tax brackets also apply to all income generated by estates. Most trusts generate a majority of their income through investments, but this is not a hard and fast rule. Many manage assets such as buildings and property, for example. Any income generated by rents or rental fees from these assets would be classified as ordinary income, not capital gains.

Primary Tax Deductions for Trusts

There are multiple tax deductions that a trust might qualify for. Here are four categories of primary deductions that concern trusts.

1. Contributions and Gifts

The contributions made to a trust are generally not subject to income taxes. The person making this contribution has already paid taxes on the money, so the IRS considers this double taxation. By and large, the trust only pays taxes on income it generates from money and assets it holds.

The beneficiary of a trust may have to pay taxes on money that he or she receives. Generally speaking, beneficiaries must pay taxes on any distributions they receive that the trust paid from income that it earned in the current tax year. A beneficiary does not have to pay taxes on any distributions that the trust makes from its principal balance. Any money that the trust earns and distributes in the same year, it does not pay taxes on.

When both could apply, distributions from a trust are considered to be first from the current year’s income (and so the beneficiary has to pay taxes on that money) and then from the principal. However, in some cases, a beneficiary can still avoid paying any taxes if he or she has received less from the trust than a lifetime gift tax exemption.

In 2025, this is set at $13.99 million for individuals and $27.98 million for couples.
In 2024, the limits were $13.61 million for individuals and $27.22 million for couples.

Trump’s tax plan increases the limit to $15 million for individuals and $30 million for couples, beginning in 2026. The higher limits are permanent and will be indexed annually for inflation.

2. Trustee and Tax Preparation Fees

The trust may deduct reasonable fees for trustee management and tax preparation. However, the trust may only deduct these fees based on the proportion of income that is taxable. For example, say that a trust received $20,000 worth of income in a given year. However, only $10,000 of that income was subject to taxes. The trust could then deduct half of its management and accounting fees.

3. Charitable Donations

A trust may typically deduct any cash donations made to charity. Since this is a deduction it is nonrefundable, meaning that a trust cannot deduct more in donations than it earned in taxable income.

There are three additional rules to note:

Trusts that make noncash donations are limited to deducting the cost basis of the asset, instead of its fair market value.
The trust document must authorize charitable donations.
Donations must come from the trust’s gross taxable income.

4. Income Distribution Deduction

Trusts split income between what they keep and what they pay out, called distributable net income (DNI).

Trusts that make distributions to beneficiaries can separate their income into two segments for tax purposes: the income the trust keeps for itself, and the income it distributes. The portion of the trust’s income that it distributes is known as the distributable net income (DNI).

Trusts do not have to pay taxes on the portion of their income that they distribute to beneficiaries in the same calendar year as it was earned. (This is because beneficiaries pay taxes on this income.) Any income that the trust does not distribute in the same year that it is earned is taxed and then added to the trust’s principal.

The DNI is calculated as the trust’s total taxable income, less its capital gains, plus any applicable tax exemption:

DNI = Total Taxable Income – Total Capital Gains + Applicable Exemptions

Remember, total capital gains is the sum total of all capital gains offset by any capital losses. A trust can then deduct from its income taxes the amount of any distributions it makes to qualified beneficiaries up to the total DNI.

How Trust Taxes Affect Beneficiaries

When a trust makes distributions, the tax responsibility may shift from the trust itself to the beneficiaries. The IRS looks at the trust’s distributable net income (DNI) to determine how much of a distribution is taxable. Distributions that come from current-year income are taxable to the beneficiary, while distributions that come from the trust’s principal are not, since that money has already been taxed.

Beneficiaries typically pay income tax on their share of the trust’s distributed earnings. This includes ordinary income such as interest and rental income, as well as capital gains if those gains are distributed. However, if the trust retains capital gains, it pays taxes on those gains instead. Because trusts reach the highest tax brackets quickly, shifting income to beneficiaries often results in lower overall taxes, since individuals usually have wider income brackets.

The type of income matters. For example, qualified dividends and long-term capital gains passed to beneficiaries generally receive favorable tax treatment. Ordinary income such as interest and short-term gains is taxed at the beneficiary’s ordinary rate. Beneficiaries must report this income on their individual tax returns using Schedule K-1, which the trust provides each year.

In practice, beneficiaries need to keep careful records of trust distributions and review how the income is classified. The difference between income and principal, and whether income is retained or distributed, directly affects the taxes beneficiaries must pay. This makes coordination between the trustee, beneficiaries, and tax professionals an important part of managing a trust’s assets.

Bottom Line

Trusts pay taxes on ordinary income and long-term capital gains. While their rates have changed slightly in 2025, they remain largely comparable to previous years. It’s important to understand this if you’re thinking about opening a trust or managing your trust without professional help. Though, working with an expert can help you make sure that your trust takes the proper deductions in any owed taxes.

Estate Planning Tips

Building an estate plan on your own can be difficult, but a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Having a will is a great first step to taking care of your family and assets after you’re gone. However, there are many more things that you can include in a comprehensive estate plan. To learn more, check out SmartAsset’s guide to estate planning vs. wills.