With her near-sightedness, and those tremulous fingers of hers, at once inflexible and delicate, she could not be a seamstress; although her sampler, of fifty years gone by, exhibited some of the most recondite specimens of ornamental needlework.
State taxes on family trusts vary, but federal laws require family trusts to pay taxes on income it keeps but not on any that is distributed. A trust that earns $50,000 and distributes it all to trust beneficiaries pays no income tax. The beneficiaries pay income taxes on funds given to them.
The grantor of the trust is not personally liable for income taxes on trust income; the tax liability belongs to the trust itself. The variation in income tax brackets also allows you to move assets to a trust that enjoys a lower tax rate. If the irrevocable trust includes a life insurance policy, then the benefits paid to your beneficiaries after your death are not subject to federal income or estate taxes.