Georgia State Tax Considerations for Trusts

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If you have a trust in Georgia, you may be wondering how it gets taxed. The good news is that Georgia is one of the more tax-friendly states for trust planning. But that does not mean you can set up a trust and forget about taxes. There are real rules under both Georgia law and federal law that affect how your trust is taxed, what income gets reported, and how much you may owe. At Slowik Estate Planning in Atlanta, Georgia, we help families understand these rules so they can make smart choices for their future.

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Georgia Has No State Estate Tax

One of the biggest advantages of planning your estate in Georgia is that the state does not impose its own estate tax. Under O.C.G.A. Title 48, Chapter 12, Section 48-12-1, Georgia eliminated its state estate tax. Most of the other sections in that chapter have been repealed entirely. This means your estate, including assets held in a trust, will not face a state-level estate tax when you pass away.

That said, you still need to think about the federal estate tax. The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, amends Section 2010(c)(3) of the Internal Revenue Code by increasing the basic exclusion amount to $15,000,000 for calendar year 2026. The federal estate tax exemption for 2026 is $15 million per individual, with married couples exempt up to $30 million. The annual gift tax exclusion remains at $19,000 per individual for 2026.

What does this mean for most Georgia families? Most estates will not owe any federal estate tax. Estates whose taxable value falls below that threshold generally will not owe federal estate tax. But if your estate includes a business, real estate, investments, or other significant assets, it is worth planning now. Assets inside certain types of trusts may or may not be included in your taxable estate, depending on how the trust is structured. That is exactly why working with an Atlanta estate planning lawyer matters so much.

Under the One Big Beautiful Bill Act, the new $15 million gift, estate, and generation-skipping exemption amount is now “permanent” but will continue to be indexed annually to inflation. Unlike prior legislation that had increased exemption amounts, the Act includes no sunset provisions. This is good news for long-term planning, but tax laws can always change. Reviewing your trust documents regularly is still a smart move.

How Georgia Taxes Trust Income

Just because Georgia has no estate tax does not mean trusts avoid all state taxes. Georgia does tax trust income. Under O.C.G.A. § 48-7-22, Georgia imposes income tax on fiduciaries (trustees) and trust beneficiaries. The tax is imposed upon fiduciaries at the rates provided for single individuals, and it is levied annually on that part of the net income of an estate or trust which has not become distributable during the taxable year. The purpose of this code section is to tax fiduciaries or beneficiaries on all income otherwise taxable under Georgia law.

The tax imposed upon a fiduciary is a charge against the estate or trust. This means the trust itself can be responsible for paying the tax on undistributed income. When income is distributed to beneficiaries, the beneficiaries generally report that income on their own Georgia tax returns.

Georgia uses a flat income tax rate. Georgia uses a flat individual income tax rate of 5.19%. Trusts taxed as fiduciaries are subject to this same rate. This applies to income that stays inside the trust and has not been paid out to beneficiaries during the year.

Georgia also allows a small deduction for trusts. A deduction in lieu of a personal exemption deduction is allowed for a trust in the amount of $1,350. That is a modest deduction, but it does reduce the taxable income of the trust slightly before the 5.19% rate is applied.

One important exception exists for nonresident beneficiaries. Income received by a resident fiduciary is not subject to Georgia income tax when the income is accumulated for, distributed, or becomes distributable during the taxable year to a nonresident of Georgia and when the income was received from business done outside the state, property held outside the state, or intangible property held by a fiduciary. If your trust has beneficiaries living in other states, this rule may affect how Georgia taxes the trust’s income.

Grantor Trusts and the Step-Up in Basis Issue

A grantor trust is a trust where the person who created it (the grantor) is still treated as the owner for income tax purposes. This is a common structure in estate planning. With a grantor trust, the grantor reports all of the trust’s income on their own personal tax return. The trust itself does not pay income tax separately.

This sounds simple, but there is an important tax issue you need to know about. Under IRS Revenue Ruling 2023-2, if you transfer assets to an irrevocable trust and those assets are not included in your taxable estate at death, the assets do not receive a step-up in cost basis when you die. This matters because a step-up in basis can significantly reduce the capital gains tax your beneficiaries pay when they sell inherited assets.

Here is a simple example (for illustration purposes only): Suppose you bought stock for $50,000 and it is now worth $200,000. If the stock passes through your estate, your heirs may receive a stepped-up basis of $200,000. If they sell it right away, they owe no capital gains tax. But if that same stock sits in an irrevocable grantor trust that is not included in your estate, your heirs inherit your original $50,000 basis. They would owe capital gains tax on $150,000 of gain when they sell.

This is a real trade-off in trust planning. Removing assets from your taxable estate may save estate tax, but it can cost your heirs more in capital gains taxes later. The right answer depends on your total picture. At Slowik Estate Planning, we look at both sides so you can make an informed decision. We also help clients who have international connections understand how these rules interact with International Estate Planning considerations.

Georgia Trust Law and How It Affects Tax Planning

Georgia’s trust laws are governed by the Revised Georgia Trust Code of 2010, found at O.C.G.A. Title 53, Chapter 12. This code covers everything from how trusts are created and modified to how trustees manage trust assets. Understanding these rules is key to good tax planning, because the structure of your trust directly affects how it is taxed.

For example, under Article 3 of the Revised Georgia Trust Code (O.C.G.A. §§ 53-12-40 through 53-12-45), a revocable trust can be changed or canceled by the grantor at any time. Because of this control, the IRS treats revocable trusts as grantor trusts. All income is taxed to the grantor personally during their lifetime. At death, the trust becomes irrevocable and is then taxed separately.

Under Article 5 of the Code (O.C.G.A. §§ 53-12-80 through 53-12-83), spendthrift and discretionary trusts offer protections for beneficiaries. A discretionary trust gives the trustee flexibility to decide when and how much income to distribute. This flexibility can be a useful tax planning tool. When the trustee holds income inside the trust, the trust pays tax on it. When income is distributed, the beneficiary pays tax on it. Choosing the right timing can affect the overall tax burden.

Article 17 of the Code (O.C.G.A. §§ 53-12-380 through 53-12-455) covers the Georgia Principal and Income Act. This article sets the rules for how a trustee allocates receipts and expenses between income and principal. This matters for tax purposes because income beneficiaries are taxed on income distributions, while remainder beneficiaries are not taxed until they receive their share of the trust principal. Proper trust administration under these rules helps ensure that each beneficiary is taxed correctly.

Article 16 of the Code (O.C.G.A. §§ 53-12-340 through 53-12-364) governs how trustees invest trust assets. Good investment decisions affect the type and amount of income a trust generates, which in turn affects how the trust is taxed. Trustees in Georgia have a duty to invest prudently, balancing the interests of current income beneficiaries and future remainder beneficiaries.

Charitable Trusts and Tax Benefits in Georgia

If you want to give to charity while also reducing your tax burden, a charitable trust may be the right tool. Georgia law specifically recognizes charitable trusts under Article 9 of the Revised Georgia Trust Code (O.C.G.A. §§ 53-12-170 through 53-12-175). These trusts can provide real tax benefits at both the state and federal level.

A Charitable Remainder Trust (CRT) allows you to transfer assets into the trust, receive an income stream for a period of years (or for life), and then pass the remaining assets to a charity when the trust ends. You get a partial income tax deduction when you fund the trust, and the trust itself is generally exempt from federal income tax. Charitable giving is another avenue worth exploring. Donor-advised funds, charitable remainder trusts, and direct gifts to qualified organizations can reduce estate tax exposure while supporting philanthropic goals.

A Charitable Lead Trust (CLT) works the opposite way. The charity receives income from the trust first, and your heirs receive the remaining assets later. This can reduce gift and estate taxes on the amount passing to your family.

Under Article 10 of the Georgia Trust Code (O.C.G.A. §§ 53-12-180 through 53-12-195), there are additional rules for private foundations and charitable trusts. These rules are designed to make sure charitable trusts operate for genuinely charitable purposes and comply with both state and federal requirements.

Charitable trusts work best when they are part of a broader estate plan. They pair well with wills and other planning tools. Whether you are charitably inclined or simply looking for smart ways to reduce taxes, Slowik Estate Planning can help you explore your options. We also assist clients with unique planning needs, such as pet guardianships and pet trusts, which require their own careful tax and legal planning.

If you are ready to take the next step, contact Slowik Estate Planning in Atlanta, Georgia. Our firm serves clients throughout the Atlanta area and can help you build a trust plan that fits your goals and your tax situation. Every family’s needs are different, and we take the time to understand yours before recommending a strategy. Results in any individual case depend on that case’s specific facts and circumstances, and prior results do not guarantee similar outcomes.

FAQs About Georgia State Tax Considerations for Trusts

Does Georgia have a state estate tax on trusts?

No. Georgia eliminated its state estate tax under O.C.G.A. § 48-12-1. Your estate, including assets held in a trust, will not be subject to a Georgia state estate tax. You may still owe federal estate tax if your estate exceeds the federal exemption, which is $15 million per individual for 2026.

How is trust income taxed in Georgia?

Georgia taxes trust income under O.C.G.A. § 48-7-22. The trust pays income tax at the same flat rate as single individuals, which is currently 5.19%, on any income that is not distributed to beneficiaries during the year. Income that is distributed to beneficiaries is reported and taxed on the beneficiaries’ own Georgia income tax returns. Trusts are allowed a $1,350 deduction in lieu of a personal exemption under O.C.G.A. § 48-7-26.

What is a grantor trust and how is it taxed in Georgia?

A grantor trust is a trust where the person who created it keeps enough control or interest that the IRS treats them as the owner for income tax purposes. All income earned by a grantor trust is reported on the grantor’s personal income tax return, not on a separate trust return. This applies at both the federal and Georgia state level. Revocable living trusts are the most common example of grantor trusts.

Can I reduce taxes by putting assets into an irrevocable trust in Georgia?

Possibly, but it depends on your goals and the type of trust. Placing assets in an irrevocable trust can remove them from your taxable estate, which may reduce or eliminate federal estate tax. However, as IRS Revenue Ruling 2023-2 makes clear, assets in an irrevocable trust that are not included in your estate at death generally do not receive a step-up in cost basis. This can increase capital gains taxes for your beneficiaries when they eventually sell those assets. Weighing these trade-offs requires careful planning with a qualified attorney.

Do I need a lawyer to set up a trust for tax purposes in Georgia?

While Georgia law does not require you to use a lawyer to create a trust, the tax rules surrounding trusts are complex. Mistakes in how a trust is structured can lead to unintended tax consequences for you and your beneficiaries. Working with an attorney who focuses on estate planning in Georgia helps ensure your trust is drafted correctly, complies with the Revised Georgia Trust Code of 2010, and achieves your tax and planning goals. Slowik Estate Planning serves clients in Atlanta, Georgia, and welcomes you to reach out to discuss your situation.

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