What Is a Trust (Taxes)?

A trust is a legal arrangement where a trustee holds and manages assets for the benefit of beneficiaries. For tax purposes, the key distinction is revocable vs. irrevocable. A revocable trust (like a living trust) is ignored for income tax purposes — the grantor still pays tax on the income. An irrevocable trust is a separate tax entity and files its own return. Trusts reach the top income tax bracket at very low income levels (around $15,000). Trusts are commonly used to avoid probate, protect assets, and manage wealth transfers efficiently.