A complex trust is one that does not fulfill the IRS conditions of a simple trust. The expression "complex" refers to the trustee's discretion rather than the trust's provisions being more complex. A complex trust must engage in at least one of the following three activities each year to be regarded as such:
- The trust must keep part of its income rather than giving it all together to the beneficiaries.
- The beneficiaries must receive part or all of the trust's principal.
- A portion of the trust's assets must be distributed to charity organizations.
When calculating taxable income for the year, complex trusts can deduct certain expenses. The amount of any income the trust is obligated to distribute for the year is deducted. If the owner has a large estate or many beneficiaries, a complex trust may provide additional estate planning options.
[Last updated in May of 2022 by the Wex Definitions Team]