If trust income is accumulated, the trust is taxed on the income received and the beneficiaries are taxed on it when it is distributed to them under a special throwback rule.
The grantor of a living trust may be taxed on the trust income if, at any time, it can be used for his or her personal or economic benefit.
A trust is taxable at the grantor's rates on built-in gain from the sale of property transferred to the trust and sold within two years of the transfer and before the grantor's death.
Trust property is not includable in the grantor's gross estate if the trust is irrevocable and the grantor does not possess any substantial rights and powers over it. If the trust property is life insurance, then the grantor must have transferred the policy at least three years prior to death.
Transfers to irrevocable living trusts are treated as gifts to the beneficiaries and are taxable as such in accordance with the general gift tax rules.
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