Tax Considerations for Trust Accounts

Any time you open an account at Wealthfront, we ask for tax information so we can determine the right tax level to help optimize after-tax returns. Our tax levels are “high”, “medium”, and “low”, and are based on several factors including household income, tax filing status, state of residence, as well as portfolio type.

In many cases, a trust account that you open will be taxed the same as you, so the tax level we recommend will be accurate. But in some cases, the trust account may be taxed differently, which means the tax level we recommend could be incorrect. If this applies to the trust you manage, you, as trustee, may need to manually change the tax level for the trust account to ensure it’s appropriate for the rate at which the trust is taxed. You can manually edit the tax level during the trust account set up, or by tapping “edit portfolio” on your account dashboard after your trust account is open. Note that we do not currently support editing tax levels on Automated Bond Portfolio Accounts. As an alternative, you could create a separate Wealthfront login through which you manage Trust Accounts that are taxed differently to maintain two separate sets of tax information for accounts that are taxed differently.

How to determine the right tax level for the trust account:

Step 1: Determine the trust’s marginal federal and state tax rates.You can use the tax rate schedule on IRS Form 1041-ES for the federal rate. State tax rates vary, so you’ll need to consult your state’s trust taxation guidelines or your tax advisor. 

Step 2: Look up the tax level assigned to the trust’s marginal federal and state tax rate using the table most suitable for your trust below..

Step 3: Edit the tax level on the trust account to match the level indicated in the tax table.