Under federal income tax laws, irrevocable, non-grantor trusts (such as Bypass Trusts and Dynasty Trusts) are subject to highly compressed income tax brackets. In 2014, the top 39.6% tax rate kicks in at only $12,500 of trust income. In addition, trusts in the top tax bracket are subject to the 20% long term capital gains rate and a 3.8% surtax on the lesser of undistributed net investment income or adjusted gross income over $12,500.Under federal income tax laws, irrevocable, non-grantor trusts (such as Bypass Trusts and Dynasty Trusts) are subject to highly compressed income tax brackets. In 2014, the top 39.6% tax rate kicks in at only $12,500 of trust income. In addition, trusts in the top tax bracket are subject to the 20% long term capital gains rate and a 3.8% surtax on the lesser of undistributed net investment income or adjusted gross income over $12,500.