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Setting up a trust is one of the most thoughtful steps you can take for your family’s financial future. But before you sign anything, it helps to understand what creating a trust actually means for your tax situation, both now and down the road. Kansas has its own rules, and federal law layers on top of those. Here is what you need to know.
Does Kansas Have a Separate Trust Income Tax?
Kansas taxes trust income similarly to individual income, using the same graduated rates that apply to residents filing state returns.
Yes, Kansas taxes trust income. The Kansas Department of Revenue treats trusts as separate taxable entities, meaning income that stays inside the trust and is not distributed to beneficiaries gets taxed at the trust level. Kansas income tax rates for individuals and trusts are subject to change through legislative action. Rather than listing specific rates, refer readers to the current rate schedules published by the Kansas Department of Revenue. You can verify the current rate schedule directly through the Kansas Department of Revenue at ksrevenue.gov.
One important distinction: income that a trust distributes to beneficiaries typically gets reported on the beneficiary’s own return rather than the trust’s. So who pays the tax often depends on how the trust is structured and whether distributions are made during the tax year.
Revocable vs. Irrevocable Trusts: Why the Difference Matters for Taxes
Revocable trusts are ignored for tax purposes during your lifetime; irrevocable trusts are treated as separate taxable entities by the IRS and Kansas.
The type of trust you create has a direct effect on how it gets taxed.
With a revocable living trust, you keep full control over the assets. Because of that control, the IRS treats the trust as a “grantor trust,” meaning all income, deductions, and credits pass through to your personal tax return. You do not file a separate tax return for a revocable trust during your lifetime. From a tax standpoint, it is as if the trust does not exist yet.
With many irrevocable trusts, you give up significant control over the assets. Depending on how the trust is drafted, it may be treated as a separate taxpayer, or it may continue to be treated as a grantor trust for income tax purposes. It gets its own Employer Identification Number (EIN) from the IRS, files its own federal income tax return (Form 1041), and pays taxes on any undistributed income. This separation can create estate planning advantages, but it also creates ongoing tax compliance responsibilities.
Federal Tax Considerations You Cannot Ignore
Federal trust income tax rates are compressed, meaning trusts reach the top 37% bracket much faster than individual filers.
At the federal level, trusts face compressed income tax brackets. Trusts reach the highest federal income tax bracket at much lower income levels than individual taxpayers. Because the IRS adjusts these thresholds annually for inflation, the applicable amounts should be verified for the current tax year. An individual filer does not reach that top bracket until income exceeds $626,350 (for single filers). This compression is one reason many estate planning strategies involve distributing income to beneficiaries rather than letting it accumulate inside the trust.
Trusts may also be subject to the 3.8% Net Investment Income Tax under Internal Revenue Code Section 1411 on undistributed net investment income above a relatively low threshold. For trusts, that threshold sits at the same dollar amount that triggers the top income tax bracket.
The IRS Publication 559 and the instructions for Form 1041 provide detailed guidance on federal trust taxation and are available at irs.gov.
Estate and Gift Tax Implications in Kansas
Kansas does not have a separate state estate or gift tax, but federal estate tax rules still apply to certain larger estates.
Kansas repealed its state estate tax in 2010, so there is no Kansas-specific estate tax to worry about when assets transfer through a trust at death. Federal estate tax applies only to estates exceeding the applicable federal exemption amount, which is adjusted periodically under federal law. The exemption should be confirmed for the year in which estate planning advice is provided.
Irrevocable trusts, when structured correctly, can remove assets from your taxable estate. This is one of the primary reasons people use certain trust arrangements as part of larger estate plans. Transfers into an irrevocable trust may trigger federal gift tax reporting requirements, though they do not always result in actual tax owed if they fall within the lifetime exemption.
What About the Step-Up in Basis?
Assets held in a revocable trust are generally included in the grantor’s taxable estate and therefore generally receive a step-up (or step-down) in basis under IRC § 1014 at death.
The step-up in basis is a powerful tax benefit. When a beneficiary inherits an asset, the cost basis typically resets to the fair market value at the date of death, which can significantly reduce capital gains taxes when that asset is later sold. Assets passing through a revocable trust generally qualify for this step-up under IRC Section 1014.
Assets held in an irrevocable trust may or may not receive a basis adjustment at the grantor’s death, depending on whether the assets are included in the grantor’s taxable estate and how the trust is structured. How a trust is structured makes an enormous difference, and this is exactly the kind of detail that deserves careful legal and financial review before you proceed.
Talk to a Wichita Attorney Who Understands the Full Picture
Trust and estate tax law involves layers of state and federal rules that interact in ways that are not always obvious. Getting the structure right from the beginning saves your family real money and real headaches later.
At Larson, Brown & Ebert, PA, we have been helping Wichita families build thoughtful estate plans for over 40 years. We are located on the west side of Wichita, away from the downtown high-rise atmosphere, and that is intentional. Our goal is to be the kind of firm you can actually talk to, one that gives you the same depth of knowledge as the larger firms without making you feel like a number. Whether you are setting up a simple revocable trust or exploring more advanced estate planning options, we are here to help you make sense of it.
Call us at 316-530-8621 or visit larsonbrown.law to schedule a conversation.
Last updated: July 2026
