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Are withdrawals from a living trust taxable?
Tax laws may vary between states. However, the entire withdrawal is not taxable, only the realized earnings. For example, if your father dies and puts the money in the trust, the money is transferred, let’s say $1,000,000 to the trust. The taxes were already paid when the estate was settled and there is no further tax on the $1,000,000. If you started to withdraw the money, say $10,000 per year. This is not taxable, the money was already taxed. However, If you put the $1,000,000 in an interest bearing account at 1%, The account would earn…

0,000 in interest annually. The trust would have to pay $ tax on the interest earned, or you would have to pay the tax on the earnings when you withdraw the money. Since the Trust is treated as a tax entity, I suspect the trust would have to pay the tax. Then when you withdrew the money, you would not have to pay the tax, because it was already handled by the trust.


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