Can I elect to file our family trust as a simple trust instead of complex for better tax brackets?

The confusion here is understandable, but there's an important distinction you're missing. A trust doesn't "elect" to be simple or complex - this classification is determined by the terms of the trust instrument itself and how it operates in a given year. For a trust to be classified as a simple trust, the trust document must require that ALL income be distributed currently. The key word here is "require" - it's not optional. The governing instrument must mandate that all income be distributed in the current year. If the trust document gives trustees discretion over income distributions, then it can't qualify as a simple trust. Your quote from the regulations actually supports this. Notice it says Section 651 applies only to trusts whose governing instruments "requires that the trust distribute all of its income currently." This isn't something you can choose year by year - it's baked into the trust document itself. The reason everyone doesn't just "elect" simple trust status is because they legally can't unless their trust instrument requires all income to be distributed. There's also the fact that some grantors specifically want complex trust treatment for various estate planning and control reasons.

After struggling with a similar trust tax question last year, I found a tool that really helped clear things up for me. I kept getting conflicting advice about whether our family trust could be considered simple or complex, and the tax implications were significant. I eventually used https://taxr.ai to analyze our trust documents and the relevant tax code sections. Their AI actually reviewed the exact language in our trust instrument and identified the specific clauses that determined our trust classification. It saved me a ton of time compared to meeting with different attorneys who gave conflicting answers. For your situation, you could upload your trust document along with that tax code section you referenced, and get a clear analysis of whether your specific trust has any flexibility in how it's classified. It helped me understand exactly why our trust had to file as complex despite having language that initially seemed ambiguous.

I tried that taxr.ai tool that someone recommended above, and wow - it actually cleared everything up for me! I uploaded our family trust document that my grandfather created back in the 90s, along with some questions about whether it qualified as simple or complex. The analysis showed me exactly why our trust has to file as complex - there's specific language giving trustees "absolute discretion" over income distributions, which automatically disqualifies it from simple trust status. It even highlighted the exact paragraphs in both our trust document and the tax code that make this determination. What I found most helpful was that it gave me clear guidance on what would need to be changed in our trust document if we wanted to move toward simple trust treatment. Turns out it would require more than just mandating income distributions - we'd also need to remove some other provisions about charitable contributions. Honestly wish I'd found this months ago instead of going back and forth with our accountant who kept saying "it's complicated"!

I had a similar issue trying to figure out trust tax filing status last year, but my biggest frustration was actually trying to get someone at the IRS to answer my questions. I called for WEEKS and could never get through to anyone who understood trusts. I ended up using https://claimyr.com and their service was a game-changer. They got me connected to an actual IRS agent who specialized in trust taxation in less than 20 minutes, when I had been trying for weeks on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that trusts can't "elect" simple trust status - it's determined by the trust instrument's requirements and the actual distributions made during the year. She also pointed me to some specific publications that addressed my questions about corpus distributions. Definitely worth it when you have complex trust tax questions that need official clarification.

I was completely wrong about Claimyr. After I posted that skeptical comment, I decided to try it myself since I needed help with an error on our trust's tax ID registration. I figured it wouldn't work, but I was desperate after trying to call the IRS business line for three weeks straight. To my complete surprise, I was connected to an IRS agent in about 15 minutes. They got me through to the business/trust division, and the agent was able to resolve our FEIN issue on the spot. The agent actually explained that the trust classification rules are defined in IRC sections 651 and 661, and that many people misunderstand how they work. For what it's worth, the agent confirmed exactly what others here have said - the simple/complex classification isn't an annual election, but is determined by the trust document's requirements and the actual distributions made. She said they see a lot of incorrect filings where people treat discretionary trusts as simple trusts, which can trigger audits.

One aspect nobody's mentioned yet: even if your trust document requires all income to be distributed (potentially qualifying as a simple trust), if you make ANY corpus/principal distributions in a given year, the trust must file as complex for that year. I learned this the hard way. Our family trust requires all income be distributed annually, so our accountant had been filing it as a simple trust for years. But when we distributed some principal to help my sister with medical bills, our accountant didn't realize this automatically triggered complex trust status for that year. We had to file an amended return. The regulations are clear that a trust cannot be a simple trust in any year in which it distributes corpus. So even if your trust document qualifies under 651(a)-1, any corpus distribution automatically makes it complex for that year.

I'm a bit confused by the differences in tax rates. How much higher are the trust tax rates compared to individual rates? I'm the beneficiary of my grandparent's trust and I've been wondering why the trustee is so adamant about distributing all the income each year.

This is a great discussion that really highlights how complex trust taxation can be! As someone who's dealt with similar confusion, I want to add one more important consideration that might help others reading this thread. Even if you could somehow modify your trust to qualify as a simple trust, you need to think carefully about whether that's actually beneficial in the long run. While the tax rate compression issue is real (trusts hitting 37% at just $14,500 vs $578,000+ for individuals), there are other factors to consider. Simple trust status means ALL income must be distributed and taxed to beneficiaries every year, regardless of whether they need the money or whether it's the optimal time tax-wise. With a complex trust, the trustee has flexibility to distribute income in years when beneficiaries are in lower tax brackets, or retain income in years when beneficiaries have unusually high income from other sources. Also, once income is distributed from a simple trust, it's gone from the trust permanently. Complex trusts allow for more sophisticated tax planning strategies, like timing distributions to offset capital losses or spreading income across multiple beneficiaries. The "election" you were hoping for doesn't exist precisely because Congress wanted to prevent tax gaming - but the flexibility of complex trusts often provides better overall tax outcomes when managed properly.