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State Income Taxation of Non-Grantor Trusts: Residency, Income Sourcing Issues, Planning Opportunities

Recording of a 90-minute CLE/CPE video webinar with Q&A

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Conducted on Monday, September 30, 2024

Recorded event now available

or call 1-800-926-7926

This CLE/CPE webinar will provide estate planning counsel with an in-depth analysis of the state taxation of non-grantor trusts and planning strategies for estate planners. The panel will address various state tax law issues, trust and trustee residency, and income sourcing challenges, as well as offer planning strategies to avoid or minimize state taxation of non-grantor trusts.

Description

State income tax treatment of non-grantor trust income is often a considerable and unanticipated expense. Calculating and reporting these expenses is a more significant challenge for tax advisers where the trust has multistate contacts, either because of different resident states for settlors, beneficiaries, or trustees or because of business operations in more than one state.

Non-grantor trusts and their beneficiaries are subject to federal income tax and state income tax depending upon the residency of the trust. Whether a trust and its beneficiaries are subject to state income taxation will depend upon individual state law, resulting in high tax liabilities. However, proper planning and trust administration can minimize or eliminate state income taxes on non-grantor trusts.

Most states impose an income tax on resident trusts and state-sourced income of nonresident trusts. As with virtually all multistate taxation issues, the variety of conflicting state laws creates tremendous tax compliance issues. Determining whether a trust is resident or nonresident can present a severe challenge.

Additional complexity arises in navigating the rules determining when to allocate income to a trust instead of its beneficiaries. Most states tax nonresident trusts and nonresident beneficiaries only on income sourced to the state. However, determining the amounts taxed at the trust vs. beneficiary level is not clear when a nonresident trust has income or loss from multiple states.

Listen as our experienced panel addresses various state tax law issues, trust and trustee residency, and income sourcing challenges, as well as offers planning strategies to avoid or minimize state taxation of non-grantor trusts.

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Outline

  1. Nongrantor vs. grantor trust tax treatment
  2. Determining whether a trust is resident or nonresident
  3. State taxation of resident trusts
  4. Key issues for nonresident trusts
    1. Allocating income between non-grantor trust and beneficiaries in multistate contact situations
    2. State apportionment issues for trusts holding active business income
  5. Planning steps
    1. Avoiding issues with multiple settlors where settlors live in different states
    2. Establishing separate trusts in cases where beneficiaries are based in different states

Benefits

The panel will review these and other relevant topics:

  • Critical factors in determining whether a trust is resident or nonresident for state income tax purposes
  • How do some key states approach allocating income between a nonresident trust and its beneficiaries?
  • Issues when trusts receive active business income from multiple states outside of its resident state
  • What strategies are available to minimize or eliminate state income taxes for non-grantor trusts?

Faculty

Davidson, Nickolas
Nickolas Davidson
Senior Manager
Ernst & Young

Mr. Davidson is a Tax Senior Manager in the Private Tax group of Ernst & Young's National Tax Department in...  |  Read More

Leggiero-Heather
Heather Leggiero
Partner
The Bonadio Group

Ms. Leggiero is a partner on the firm’s Tax Team, the tax technical leader of our Not-for-Profit Tax-Exempt...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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