How Does a Trust Move to another State?

3 Replies

A revocable estate planning trust is now irrevocable after grantor passes away. Trust holds several tax sheltered accounts (IRA, 401k). Successor trustee wants to minimize taxes upon distribution of these tax sheltered accounts. Trust was formed in CA. How does the trust establish residency in a zero tax state like say FL so as to make the trust assets last longer for the beneficiary?

I think California trust taxation is driven by residence of the trustee/s, residence of the beneficiaries, and whether or not the trust distributes it's income and to whom.

There may be some planning opportunities around those variables.

Speak to a good CPA.

Depending on the State, you might not be able to avoid state taxation. Some states look at where the Trustee is located, others where the Assets are, and some states on where the Grantor was at the time the Trust was formed. Some states look at where the beneficiary is, etc.

For income tax purposes, if all trust income is distributed to the beneficaries every year,  the beneficiaries' state of residence determines the applicable state income tax rate on that income.  The trust itself only pays taxes on retained income. 

Assets of the trust do not have to be distributed until the trust is dissolved.  If the language of the trust requires all income earned by the trust to be distributed, then the trust is a pass-through entity with no state or federal income taxes paid by the trust itself.

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