Trust Tax Rates and Exemptions for 2026

A trust is a legal arrangement 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 can 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 the trust 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: While grantors normally appoint trustees, this trust can be 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 trust is a type of living 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, such as 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.

2026 Income Tax Rates for Trusts

For 2026 taxes (which you’ll file in 2027), 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 $3,300: 10%
$3,300 to $11,700: 24%
$11,700 to $16,000: 35%
$16,000+: 37%

The standard rules apply to these four tax brackets. So, for example, if a trust has $10,000 in income during 2026, it would pay the following taxes:

10% of $3,300 (all earnings between $0 to $3,100) = $330
24% of $6,700 (all earnings between $3,101 to $10,000) = $1,608
Total tax due = $1,938$

Note that these brackets were increased from their previous amounts in 2025 (filed in 2026). Below are the 2025 tax brackets for trust income:

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

Trusts may be required to make quarterly estimated tax payments throughout the year, against any expected tax liability. For 2026, a trustee must make estimated payments if the trust will owe $1,000 or more in taxes, after subtracting withholding and credits. Trustees must file estimated taxes using IRS Form 1041-ES.

2026 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 2026 (which you’ll file in 2027):

$0 to $3,300: 0%
$3,300 to $16,250: 15%
$16,250+: 20%

These brackets are higher than the amounts that were set for 2025 (filed in 2026), which are below:

$0 to $3,250: 0%
$3,250 to $15,900: 15%
$15,900+: 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

Contributions made to a trust are not subject to income tax at the time they are transferred. The person funding the trust typically contributes after-tax dollars or assets, so the IRS does not treat the transfer itself as taxable income. As a result, the trust generally owes income tax only on earnings generated by the assets it holds, such as interest, dividends or capital gains.

Whether a trust contribution has gift or estate tax implications depends on the structure of the trust and the rights retained by the grantor. Those rules are separate from how trust income and distributions are taxed and are governed by federal gift and estate tax law.

Income tax liability does not shift to beneficiaries when assets are contributed to a trust. Taxation at the beneficiary level applies only when the trust makes distributions, not when it is funded.

2. Trustee and Tax Preparation Fees

A trust may deduct reasonable trustee fees, management costs and tax preparation expenses when calculating its taxable income. These deductions can offset the trust’s income for the year, potentially reducing its taxable income to zero.

However, a trust cannot use expenses to create a tax loss. If deductible expenses exceed the trust’s income for the year, the excess deductions are not lost, but they generally cannot be used by the trust while it remains in existence.

When a trust terminates, any unused excess deductions are passed through to the beneficiaries who receive the remaining trust assets on the trust’s final tax return. Those beneficiaries may then be able to claim the deductions on their individual tax returns, subject to applicable tax rules.

3. Charitable Donations

A trust may typically deduct any cash donations made to charity. There are three additional rules to note:

Trusts that make non-cash 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 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 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 also matters when it comes to trust taxation. 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 and beneficiaries, as well as with tax professionals, an important part of managing a trust’s assets.

When Trust Planning Makes Sense

Trusts can support estate and tax goals when you want to manage how assets are transferred and how they are treated for tax purposes. For example, many people use irrevocable trusts to remove future growth from their taxable estate. When assets are transferred to an irrevocable trust, the appreciation occurs outside the estate, which can help reduce future estate tax exposure.

A trust can also carry out specific instructions for managing or protecting assets. Families often use trusts to provide long-term oversight for property, investment accounts or funds set aside for education or support. The trust document can specify when distributions are allowed and how much can be distributed, giving structure to the long-term management of the assets.

Trusts may also be useful when beneficiaries are expected to be in different tax situations. Because trusts reach higher income tax brackets quickly, some grantors design distribution rules that shift taxable income to beneficiaries, who may be in lower brackets. This can affect how overall income is taxed between the trust and the people who receive distributions.

Estate plans often combine trusts with available exemptions to help manage large transfers over time. A trust can hold gifts during life or future inheritances and apply tax rules in a way that aligns with the grantor’s estate planning strategy. The choice of trust depends on the type of assets involved, the purpose of the transfer and how the trust is structured for tax purposes.

Bottom Line

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

Trusts pay taxes on ordinary income and capital gains. While their rates and brackets have changed slightly in 2026, 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.