When it comes to estate and trust planning, timing is everything. One of the most powerful tax-saving strategies available is the 65-day rule, outlined in Section 663(b) of the U.S. tax code. This little-known provision allows trustees and fiduciaries to make distributions within 65 days after the end of the tax year and count them as if they were made in the previous tax year, a move that can lead to significant tax savings.
Why Does the 65-Day Rule Matter?
Estates and trusts are taxed differently from individuals, often facing much higher rates at lower income levels. For example, in 2025, fiduciary tax rates reach the highest bracket of 37% at just $15,650, whereas an individual taxpayer (married filing jointly) doesn’t hit the same 37% rate until their income surpasses $751,600. This sharp contrast means that trusts and estates can owe hefty taxes on relatively small amounts of income.
But here’s where the 65-day rule comes in handy:
Distribute income strategically: By shifting taxable income from the estate or trust to beneficiaries—who may be in lower tax brackets, you can reduce the overall tax burden.
Maximize tax efficiency: Beneficiaries often pay less in taxes than a trust or estate would, allowing for better wealth preservation.
Proceed with Caution: Key Considerations
While this rule offers compelling advantages, it’s not a one-size-fits-all solution. Here are a few things to keep in mind:
✔ Proper Documentation is Key – Fiduciaries must carefully track distributions and comply with IRS regulations to avoid tax penalties.
✔ Consult a Certified Public Accounting (CPA) Professional – Every estate or trust has unique financial considerations. Professional guidance ensures you don’t trigger unintended consequences.
✔ Consider Long-Term Impacts – Immediate tax savings are great, but how do distributions affect the future financial health of the estate or trust?
The Bottom Line
The 65-day rule is a valuable tool for estate and trust tax planning, allowing fiduciaries to reduce tax liabilities and provide beneficiaries with more favorable tax treatment. However, to fully take advantage of this strategy, careful planning and expert advice are essential. Don’t wait until it’s too late, consult with a Certified Public Accounting (CPA) professional today to see if this strategy fits your needs!
How Can CPAs and Forensic Accountants Help?
CPAs and forensic accountants help fiduciaries navigate the complexities of the 65-day rule by analyzing financial records, ensuring IRS compliance, and providing forensic analysis in cases of disputes or mismanagement. Partnering with an experienced CPA can maximize tax savings and protect the financial health of your estate or trust.
