The surtax is separate from the estate tax, which is currently imposed only on gross estates of over $5 million per person. It is an addition to the income tax which is imposed on trusts and estates.
The surtax will apply only to tax years beginning after January 1, 2013. For some estates and trusts, electing a fiscal year that ends in October or November could delay the imposition of this surtax for the first year.
The calculation could be a bit tricky. The statute provides that the 3.8% is applied to the lesser of
- the estate or trust's adjusted gross income over $7,500 or
- the estate or trust's "undistributed net income."
The estate or trust would normally avoid this surtax by distributing net investment income to the intended beneficiary. It should be noted, however, that this step could lead to:
- in a high-value estate or trust, the investment income bringing a recipient over the personal investment income threshold, in which event he will be personally responsible for paying the 3.8% amount, or
- making the distribution available to creditors in the event that the recipient is experiencing financial difficulties.