Do You Pay Taxes on Inherited Trust Disbursements in Kansas?
Kansas ended its estate taxes, effectively phasing out the tax on inherited distributions to heirs after 2009. However, trust income is treated differently than estate taxes. Kansas imposes a separate tax on all income received from a trust. You should understand how this tax impacts you, since any trust income is subject to this tax.
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Significance
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The tax on distributions from a trust arises from the Kansas Fiduciary Income Tax. This tax is separate from the estate tax imposed in the state prior to 2009. This tax taxes all income earned in a trust account. This includes all of the money you inherit that constitutes investment gain or gain which has not already been taxed in the trust. A Kansas Fiduciary Income Tax return is filed when you pay this tax.
Effect
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The tax is levied on assets distributed from the trust. The rate Kansas charges is 2.25 percent of total net trust income. The state also charges an additional 2.25 percent surcharge. Combined, the tax amounts to 4.5 percent on all net income from the trust.
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Disadvantage
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Because Kansas has done away with its tax on estates for individuals dying after 2009, a trust set up for your relative that was meant to lower taxes actually had the opposite effect if your relative died after 2009. This decreased the amount you received compared to the zero percent tax you would have paid had your relative not used a trust.
Consideration
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Even though you pay tax on your inheritance, this tax is less than the federal estate tax rate. It may not be possible to predict what the state changes in the future in regards to the tax structure. However, plans including a trust and life insurance are generally taxed at rates lower than estate tax rates. When making your own plan, you should not be hesitant about making a traditional estate plan based on the knowledge you currently have about the state's tax structure.
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