Studies show that 70% of wealthy families lose their wealth by the second generation, and 90% have depleted it by the third.

More than 80% of Americans want to leave money or assets to a loved one, according to an Ameriprise study. Yet only 64% feel they are on track or prepared to leave an inheritance, and even fewer (50%) have a formal plan in place.

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What is an Express Trust?
Also known as a direct trust or a private express trust, an Express Trust is a legal and lawful financial instrument that can provide wealth protection in perpetuity. This is the only type of trust actually treated like a natural person, giving it powers and protections that other trusts can’t match. They’re purposefully set up so that a court can’t interfere.

What Type of People are Interested in Express Trusts?
In short, those who believe that their life is something that is between them and their maker, not government bureaucrats. We have a right to handle our own affairs, so long as doing so doesn’t harm anyone else.

What is an express trust?
Express trusts are set up through a legal act that creates a separate estate to which all or part of the trustor’s assets are transferred. The property is administered by one or more trustees to specific ends on behalf of one or more beneficiaries.

From a tax standpoint, express trusts are considered a taxpayer and must produce its own separate tax return.

Express trusts can therefore be set up to be managed by a trustee on behalf of your designated beneficiaries.

There are two types of express trusts:
1- Testamentary trust
In Ontario, any estate (testamentary or other) is automatically a trust. However, you can create one or more express trusts, referred to here as testamentary trusts.

Testamentary trusts are stipulated in the will and are created upon the testator’s (the person making the will) death. In accordance with your will, property is turned over to a trustee who manages it according to your instructions in the best interest of the beneficiaries. A trust company is the only legal entity authorized to do this.

You determine the duration and terms of the testamentary trust.

Why a testamentary trust?
Setting up a testamentary trust for cash and assets (stocks, mutual fund shares, property) can help defer and reduce estate taxes while protecting your estate.

From a tax standpoint, assets left in trust constitute an estate separate from the estate of the beneficiaries.

There are also other reasons to set up a testamentary trust:

To protect assets from seizure by your heirs’ creditors.
To manage the assets of minor beneficiaries and avoid the intervention of the guardians and public trustees.
To release trust income or assets to children gradually over time to minor children, young adults or beneficiaries who have difficulty administrating their assets in a reasonable manner.
To meet the needs of family members with a disability.
To preserve and transfer important family assets from generation to generation by allowing beneficiaries to inherit the use of the property rather than the property itself.
To allow children from a prior marriage to inherit your estate upon the death of your spouse, subject to the rights of the surviving spouse.
2- Living or intervivos trust
This type of trust goes into effect while the trustor (the person who sets it up) is still alive and may remain in effect after he or she dies.

Maximum tax rates and Income Tax Act attribution rules apply. When it follows an estate freeze, living trusts allow income taxes on stock gains to be deferred.

Why a living trust?
In the case of privately-held companies, living trusts can be used to:

Hold company shares during an estate freeze.
Finance a buy/sell agreement when a shareholder dies.
Turn over company shares to designated beneficiaries in case no one is found to take over the business.
They can also be used to:

Maintain control over assets when a business owner is not yet ready to turn over control of the business to a major child.
Protect assets from being seized by an heir’s creditors.

In the United States, express trusts generally do not need to be registered with a central federal or state authority to be legally valid. They are private legal relationships created via a trust instrument (often a written document) to hold, manage, and distribute assets.
LII | Legal Information Institute
LII | Legal Information Institute
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Key details regarding U.S. express trusts:
No General Registry: Unlike corporations, most states do not require trusts to register with the state, although they must comply with state laws regarding validity and administration.
Tax Requirements: While they don't register, they may need to obtain an Employer Identification Number (EIN) from the IRS and file annual income tax returns (Form 1041) if the trust generates income.
Record Keeping: Trusts owning real estate or other titled assets will have those assets recorded in public records (e.g., land deeds), effectively placing the trust in the public domain for that specific asset.
Exceptions: Specific types of trusts or situations (e.g., in some states, a "registration" with a local court might be required upon the death of a settlor, but not in all cases).

Yes, an express trust is generally taxable in the United States, but the way it is taxed depends on whether it is classified as a grantor trust (usually revocable) or a non-grantor trust (usually irrevocable). Express trusts must file a federal income tax return (Form 1041) if they have $600 or more in income or a non-resident alien beneficiary.
IRS (.gov)
IRS (.gov)
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Here is a breakdown of how express trusts are taxed in the U.S.:
1. Grantor Trusts (Revocable Trusts)
Tax Treatment: The trust is "disregarded" as a separate entity for tax purposes.
Who Pays: The grantor (the person who created the trust) reports all income, deductions, and credits on their personal tax return (Form 1040).
Key Detail: All revocable living trusts are considered grantor trusts while the grantor is alive.
IRS (.gov)
IRS (.gov)
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2. Non-Grantor Trusts (Irrevocable Trusts)
Tax Treatment: The trust is considered a separate legal entity and taxpayer.
Who Pays:
The Trust: If the trust retains income (does not distribute it), the trust pays taxes on that income.
The Beneficiary: If the trust distributes income to beneficiaries, the beneficiaries pay the tax, and the trust receives a deduction.
Tax Rates: Non-grantor trusts are subject to highly compressed tax brackets, reaching the top 37% federal rate at just $15,200 of income in 2024 (and $16,000 in 2026).
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SmartAsset.com
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3. Capital Gains and Special Taxes
Capital Gains: If an irrevocable trust retains capital gains, it pays taxes at trust tax rates.
Net Investment Income Tax (NIIT): Undistributed income in a non-grantor trust may be subject to a 3.8% NIIT in addition to regular income tax.
State Taxes: Irrevocable trusts may be subject to state income taxes depending on where the trustee, grantor, or beneficiaries reside.
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SmartAsset.com
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4. Filing Requirements
Form 1041: Used for federal income tax reporting for estates and trusts.
Schedule K-1: Issued to beneficiaries to report their share of trust income for their personal returns.

When Trust Planning Makes Sense
Trusts can support estate and tax goals when you want to manage how assets are transferred and how they are treated for tax purposes. For example, many people use irrevocable trusts to remove future growth from their taxable estate. When assets are transferred to an irrevocable trust, the appreciation occurs outside the estate, which can help reduce future estate tax exposure.

A trust can also carry out specific instructions for managing or protecting assets. Families often use trusts to provide long-term oversight for property, investment accounts or funds set aside for education or support. The trust document can specify when distributions are allowed and how much can be distributed, giving structure to the long-term management of the assets.

Trusts may also be useful when beneficiaries are expected to be in different tax situations. Because trusts reach higher income tax brackets quickly, some grantors design distribution rules that shift taxable income to beneficiaries, who may be in lower brackets. This can affect how overall income is taxed between the trust and the people who receive distributions.

Estate plans often combine trusts with available exemptions to help manage large transfers over time. A trust can hold gifts during life or future inheritances and apply tax rules in a way that aligns with the grantor’s estate planning strategy. The choice of trust depends on the type of assets involved, the purpose of the transfer and how the trust is structured for tax purposes.

Bottom Line
Trusts split income between what they keep and what they pay out, called distributable net income (DNI).
Trusts pay taxes on ordinary income and  capital gains. While their rates and brackets have changed slightly in 2026, they remain largely comparable to previous years. It’s important to understand this if you’re thinking about opening a trust or managing your trust without professional help. Though, working with an expert can help you make sure that your trust takes the proper deductions in any owed taxes.