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65-day rule deadline

Don’t forget the 65-day rule deadline is March 6, 2022

The 65-day rule is a great opportunity for tax savings for trusts and estates. If you have a trust or estate running on a calendar tax year-end, then you should be aware of the 65-day rule and make sure you meet the deadline of March 6, 2022.

Under Section 663(b) of the Internal Revenue Code, a distribution by an estate or trust within the first 65 days of the tax year can be treated as having been made on the last day of the preceding tax year.

For example, a distribution of $500 of trust income by the trustee to a beneficiary on January 22, 2022, can be treated as having been made in the 2021 tax year or the 2022 tax year. In most years, including 2022, the last day to make a distribution count toward the previous tax year is March 6, 2022.

If the estate has a fiscal tax year-end, then the fiduciary must make a distribution from the estate to the beneficiaries within the first 65 days after the last day of the preceding tax year. For example, if the decedent died on April 1, 2021, and the end of the fiscal year was March 31, 2022, then the distributions must be made by June 4, 2022.

The main advantage of the 65-day rule is that it could help save on tax liability by passing on income to beneficiaries who likely have a lower tax rate than the estate or trust. This is because the estate or trust has a much lower threshold for the top graduated tax rate than an individual.

For example, if a trust has income in excess of $13,050 then that income is subject to the tax rate of 37% in 2021. Whereas a married couple filing jointly pays the top rate of 37% when their combined income exceeds $622,050. Single filers pay the top tax rate of 37% when income exceeds $518,400.

If the trustee or estate fiduciary was not able to make a distribution before the end of the tax year, then the 65-day rule gives them some extra time to make the distribution and have the tax benefit of passing the income on to the residuary beneficiaries who received the distribution within the first 65 days of the next tax year.

Be sure to consult with an experienced estate planning attorney for all of your tax questions regarding trusts and estates including the 65-day rule deadline.

Eric Einhart

Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530
800-680-1717

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