How Are Trusts and Estates Under Administration Taxed by the BIR? Fiduciary Income Tax Under NIRC Sections 60–66

A trust or estate that is still under administration — meaning a trustee, executor, or administrator holds and manages its property rather than the beneficiaries owning it outright — is treated by the BIR as a taxpayer in its own right under NIRC Sections 60 to 66. Income the fiduciary distributes to beneficiaries during the year is taxed to those beneficiaries; income the fiduciary accumulates or holds back is taxed to the trust or estate itself, which files its own BIR Form 1701 through the fiduciary.

When is a trust taxed as its own entity vs. taxed to the grantor? #

A trust is taxed as a separate entity under NIRC Section 60 by default, but the law disregards that separateness — and taxes the grantor directly instead — in two specific situations under Sections 63 and 64: a revocable trust, and a trust whose income benefits the grantor personally. Which rule applies depends on how much control the person who created the trust actually gave up.

Section 60(A) of the National Internal Revenue Code (NIRC), as amended, as reproduced by the Tax and Accounting Center, Inc., provides:

“The tax imposed by this Title upon individuals shall apply to the income of estates or of any kind of property held in trust, including: (1) Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust; (2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct; (3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and (4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.”

That default rule — that a trust or estate under administration is taxed the same way an individual is — is the same statutory foundation covered in Does an Estate Under Judicial Settlement File Its Own BIR Income Tax Return?, which walks through an estate under judicial settlement as one specific application of Section 60. This post covers the fuller Sections 60–66 framework, which applies to trusts generally, not only to estates in probate.

Two carve-outs pull income back out of the trust and onto the grantor:

• Revocable trusts (Section 63). If the grantor retained the power to revest title to the trust property in themselves — that is, they can undo the trust and take the property back at will — the trust’s income is taxed directly to the grantor, because the grantor never genuinely relinquished ownership.
• Income for the grantor’s benefit (Section 64). Income that is held or accumulated for the grantor’s own benefit, or that may be applied to pay premiums on insurance policies on the grantor’s life, is likewise taxed to the grantor rather than the trust, on the same rationale: the arrangement has not actually shifted economic benefit away from the person who created it.

Outside of those two carve-outs, a trust or estate under genuine third-party administration is its own taxpayer, separate from both the grantor and the beneficiaries, for as long as the fiduciary holds and manages the property.

How is the trust’s taxable income computed? #

A trust’s or estate’s taxable income is computed largely the same way an individual’s is under NIRC Section 61 — gross income minus allowable deductions — with one deduction unique to fiduciary taxation: the amount of income currently distributable to beneficiaries during the year is subtracted from the trust’s own gross income. That single deduction is what shifts the tax burden from the trust to the beneficiary for any income actually paid out.

In practical terms, this creates two possible outcomes for any given item of trust income in a given year:

• Distributed or distributable income is deducted from the trust’s gross income under Section 61, and the beneficiary who receives (or is entitled to receive) it reports that same amount on their own personal income tax return.
• Accumulated income — anything the fiduciary holds back rather than distributing during the year — stays in the trust’s taxable income and is taxed to the trust itself, using the same graduated rates that would apply to an individual.

Section 62 additionally allows the trust or estate a ₱20,000 personal exemption, the same fixed amount an individual taxpayer was historically entitled to claim. Personal exemptions for individual taxpayers were repealed under the TRAIN Law (Republic Act No. 10963) effective 2018, which replaced them with a restructured graduated rate schedule and a broader VAT-exemption threshold. Whether — and how — the trust’s Section 62 exemption still functions in practice after that repeal is not something this post asserts with certainty; a fiduciary should confirm current treatment with a tax professional or the BIR before relying on a specific exemption amount in an actual return.

Two or more trusts created by the same grantor for the same beneficiary can, under longstanding anti-fragmentation principles reflected in Philippine tax practice, have their income consolidated and taxed as a single entity — a rule aimed at preventing a grantor from splitting income across multiple trusts to keep each one in a lower tax bracket. A fiduciary managing multiple trusts for the same beneficiary and grantor should treat this as a real compliance risk worth raising with a tax professional rather than something to test informally.

Who files the return, and how? #

NIRC Section 65 requires a fiduciary — a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in a fiduciary capacity — to file an income tax return on behalf of the trust or estate, using BIR Form 1701, the same annual return form individuals and estates use. The return is filed under the trust’s or estate’s own Taxpayer Identification Number, separate from the grantor’s TIN and from any beneficiary’s personal TIN.

Filing responsibility does not disappear once the return is submitted:

1. The fiduciary secures a separate TIN for the trust or estate at the appropriate Revenue District Office.
2. The fiduciary computes taxable income under Section 61 — gross income earned during the year, less allowable deductions, less any amount currently distributable to beneficiaries.
3. The fiduciary files BIR Form 1701 and pays any tax due on income the trust accumulated, by the applicable annual filing deadline.
4. Beneficiaries who received distributed income during the year separately report that income on their own personal returns.

NIRC Section 66 gives the fiduciary a measure of protection in return for carrying this obligation: a fiduciary who pays tax in good faith on behalf of the trust or estate is indemnified against claims by beneficiaries arising from that payment. That protection covers good-faith tax payments — it is not a shield against liability for failing to file the fiduciary return at all, or for filing it negligently.

Worked example: a trust with both distributed and accumulated income #

Assume a trust created by a grantor for the benefit of a single beneficiary earns ₱1,000,000 in income during the taxable year, none of which reverts to the grantor and none of which is revocable — so Sections 63 and 64 do not apply, and the trust is taxed under the default Section 60 framework.

• During the year, the trustee distributes ₱600,000 to the beneficiary.
• The trustee accumulates the remaining ₱400,000, holding it in trust for future distribution rather than paying it out.

Under Section 61, the trust deducts the ₱600,000 distributed amount from its own gross income. That leaves the trust with ₱400,000 in taxable income for the year, computed the same way an individual’s taxable income would be, and reduced further by whatever ordinary deductions and the Section 62 exemption may apply. The trustee, acting as fiduciary under Section 65, reports and pays tax on that ₱400,000 by filing BIR Form 1701 under the trust’s own TIN.

The beneficiary, meanwhile, reports the ₱600,000 distributed on their own personal income tax return for the same year — it is taxed to them, not to the trust, precisely because the trustee paid it out rather than holding it back. If, in a later year, the trustee distributes the previously accumulated ₱400,000 (or income it subsequently earns) to the beneficiary, that later distribution is taxed to the beneficiary in the year it is actually distributed, not retroactively to the year it was first earned by the trust.

This same distributed-versus-accumulated split is the mechanism behind the estate income tax filings described in Does an Estate Under Judicial Settlement File Its Own BIR Income Tax Return? — an estate under judicial settlement is simply one common type of Section 60 entity, alongside trusts created during a grantor’s lifetime. Neither obligation should be confused with the one-time transfer tax on a decedent’s estate covered in How to File BIR Form 1801: Estate Tax Return Requirements and Deadlines — a trust’s or estate’s fiduciary income tax under Sections 60–66 taxes income the property generates year after year, while BIR Form 1801 taxes the one-time transfer of the property itself.

Frequently asked questions #

Is a trust a separate taxpayer from the person who created it? #

Yes, generally. Under NIRC Section 60, a trust or estate under administration is treated as a taxable entity distinct from its grantor and beneficiaries, and it computes and files its own income tax return through a fiduciary. The exception is a revocable trust under Section 63, or a trust whose income is accumulated for the grantor’s benefit under Section 64 — in both cases the law disregards the trust and taxes the income directly to the grantor instead.

Who pays the tax when a trust distributes income to a beneficiary during the year? #

The beneficiary does. Under NIRC Section 61, the trust deducts the amount of income currently distributable to beneficiaries from its own gross income, and that same amount is reportable by the beneficiary on their personal income tax return. Only income the fiduciary accumulates and does not distribute during the year remains taxable to the trust itself.

What form does a trustee or executor file for a trust’s or estate’s income tax? #

The fiduciary — the trustee, executor, or administrator — files BIR Form 1701 on behalf of the trust or estate, the same annual income tax return form used by individuals, mixed-income earners, and estates, under the fiduciary return requirement in NIRC Section 65. The return is filed using the trust’s or estate’s own Taxpayer Identification Number, separate from the grantor’s or any beneficiary’s TIN.

Does a trust get the same deductions and exemptions as an individual taxpayer? #

A trust or estate computes taxable income largely the same way an individual does under NIRC Section 61, with an added deduction for income currently distributable to beneficiaries. Section 62 also grants the trust the same ₱20,000 personal exemption available to an individual, though how that fixed exemption amount interacts with the TRAIN Law’s repeal of personal exemptions for individual taxpayers is not fully settled and should be confirmed with a tax professional before relying on it in a specific filing.

Can a fiduciary be held personally liable for the trust’s unpaid taxes? #

NIRC Section 66 protects a fiduciary who pays tax in good faith on behalf of the trust or estate from personal liability claims by beneficiaries over that payment — it indemnifies the fiduciary against claims arising from taxes properly remitted. This protects a trustee or administrator acting honestly, but it does not excuse a fiduciary who fails to file the required BIR Form 1701 fiduciary return at all.

Summary #

Trusts and estates under administration are separate BIR taxpayers under NIRC Section 60, with income split between the trust and the beneficiary depending on whether the fiduciary distributes it or accumulates it during the year — a mechanism computed under Section 61, with a ₱20,000 exemption under Section 62. Revocable trusts and trusts run for the grantor’s own benefit are the exceptions: Sections 63 and 64 tax that income directly to the grantor instead. The fiduciary — trustee, executor, or administrator — carries the filing obligation, submitting BIR Form 1701 under Section 65 and receiving good-faith protection against beneficiary claims under Section 66. This framework applies the same way to an estate in judicial settlement, covered in more detail in Does an Estate Under Judicial Settlement File Its Own BIR Income Tax Return?, and is entirely separate from the one-time transfer tax filed on BIR Form 1801.