Complex Trust Exemption Amount: $100 or $300?

A complex trust’s exemption amount is either $100 or $300, set by Section 642(b) of the Internal Revenue Code.¹ The $300 figure applies when the trust’s governing instrument requires all income to be distributed currently. Every other complex trust gets $100. One category sits outside this choice entirely: a qualified disability trust uses a much larger, inflation-adjusted exemption, which is $5,300 for 2026.²

Which Amount Applies to Your Trust

The test is what the trust document requires, not what the trustee actually did during the year. Read the instrument. If it directs that all income be distributed currently to beneficiaries, the trust qualifies for the $300 exemption. If the trustee has any discretion to accumulate income, the exemption drops to $100.

That rule produces a result that looks contradictory at first. A trust whose instrument mandates full income distribution sounds like a simple trust, and in most years it will be one. But a trust that must distribute all income can still be treated as complex for a given year if it also distributes principal or makes a charitable gift that year. The $300 exemption follows the mandatory-distribution feature in the governing document even when other activity pushes the trust into complex status for the year.

So the trustee’s job is narrow: look at what the document requires about income, not at what happened during the tax year. A trust that gives the trustee discretion to accumulate income gets $100 even in years when the trustee happens to distribute everything. A trust that requires full income distribution gets $300 even in a year it also pays out principal.

Qualified Disability Trusts

A qualified disability trust is treated differently. For 2026, its exemption is $5,300, and it adjusts annually for inflation.² To qualify, the trust must be a disability trust recognized under the Social Security Act, and all beneficiaries must have been disabled for at least part of the tax year as determined by the Social Security Administration.¹ The trust does not lose this status merely because remaining assets would revert to a non-disabled person after all disabled beneficiaries have died. If you administer a trust for a disabled family member, confirming qualified disability trust status is worth a conversation with a tax professional, because the gap between $100 and $5,300 at trust tax rates is meaningful.

Why the Exemption Size Matters More Than It Looks

The dollar amounts are small, and they have not been updated. They stay fixed because the statute fixes them. What makes even $100 or $300 worth getting right is the rate schedule the remaining income runs through.

Trust brackets are heavily compressed. For 2026:²

10% on taxable income up to $3,300
24% from $3,301 to $11,700
35% from $11,701 to $16,000
37% on anything over $16,000

A single individual does not reach 37% until taxable income passes roughly $626,000. A trust reaches it at $16,000. On top of that, the Net Investment Income Tax of 3.8% applies to the lesser of undistributed net investment income or the amount by which the trust’s adjusted gross income exceeds the threshold for the top income tax bracket, which is the same $16,000 line in 2026.³ A complex trust retaining investment income above that point can face a combined marginal rate of 40.8%. Every dollar of deduction carries weight at those rates, even a small statutory exemption.

Where the Exemption Fits in the Calculation

The exemption is the last subtraction before you reach taxable income. The order matters, because the exemption only reduces income the trust keeps, not income passed through to beneficiaries.

Start with the trust’s gross income. Subtract allowable deductions like trustee fees and tax preparation costs to get adjusted total income. Subtract the distribution deduction, which is the lesser of total distributions during the year or Distributable Net Income.⁴ What remains is the income the trust retained. Subtract $100 or $300 (or $5,300 for a qualified disability trust). The result is the trust’s taxable income, and that figure runs through the bracket schedule above.

Capital gains allocated to principal generally stay with the trust rather than flowing out through Distributable Net Income, so the trust pays tax on them directly. That is one reason a complex trust can end up with a sizable tax bill even in a year when ordinary income was fully distributed. The $100 or $300 trims that bill at the margin.

Planning Around a Small Exemption

Because the exemption itself is fixed and modest, most planning for a complex trust focuses on how much income the trust retains in the first place. The 65-day election under Section 663(b) is the main lever. A trustee can elect to treat distributions made within the first 65 days of a new tax year as if they had been made on the last day of the prior tax year.⁵ That window lets the trustee see the prior year’s income figures and then push income out to beneficiaries retroactively.

The election must be made by the filing deadline for the trust’s return for the year in question, and the amount treated this way is capped at the greater of the trust’s accounting income or its Distributable Net Income for that prior year, reduced by distributions already made during the year.⁶ The election applies only to the year for which it is made, so the trustee has to make it fresh each time.

For a trust sitting near the $16,000 top-bracket threshold, a 65-day distribution to beneficiaries in lower brackets can pull income out of the 37% rate and out of exposure to the 3.8% Net Investment Income Tax. The $100 or $300 exemption still reduces the retained income that remains after that planning, but the larger savings come from the distribution itself.

1
Office of the Law Revision Counsel. 26 USC 642 – Special Rules for Credits and Deductions
2
Internal Revenue Service. Rev. Proc. 2025-32
3
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
4
Office of the Law Revision Counsel. 26 USC 661 – Deduction for Estates and Trusts Accumulating Income or Distributing Corpus
5
Office of the Law Revision Counsel. 26 USC 663 – Special Rules Applicable to Sections 661 and 662
6
eCFR. 26 CFR 1.663(b)-1 – Distributions in First 65 Days of Taxable Year; Scope