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Are You a Trustee? GREAT NEWS for Nonresident Trust Beneficiaries

Trustees should be aware that trust taxation rules vary widely by state.

Some states such as California are extremely aggressive and will try to tax the income of out-of-state trusts based only on beneficiaries who are residents in California.

North Carolina also taxes the income of out-of-state trusts based only on beneficiaries who are residents in the state. The U.S. Supreme Court has reviewed a North Carolina tax case. This case involves a New York trust who had no contact with North Carolina except for beneficiaries residing in North Carolina. North Carolina imposed tax on the trust’s undistributed income held for the benefit of the beneficiaries.

Based on the facts of this case the Supreme Court decided that NC did not have sufficient grounds to tax the trust.

Since this Supreme Court case was decided in the last week of June 2019, I suspect it will take a few months for other states such as California to clarify their nonresident tax position.

Do you need to prepare a California trust return? Contact me before the April 15 trust filing deadline.

Richard Pon CPA, CFP