Sprinkling Trust

Under this type of trust, the independent trustee is given broad discretion to accumulate or distribute (sprinkle) income among beneficiaries. This type of trust is generally used as an income tax saving device. Because of the graduated income tax rates, a given amount of income will incur the least amount of tax if it is spread among a maximum number of taxpayers. Irrevocable trusts are separate taxpayers (with the exception of "grantor trusts"). Current trust income tax rates are very unfavorable, reaching the maximum bracket of 39.6% at merely $7,500 of trust income, so retaining income in trust is no longer a tax saving device. Trusts receive an income tax deduction for income distributed to the beneficiaries.