Fifty Nifty United States: State Income Taxation of Trusts

Trusts are a popular and powerful estate planning tool. Trusts may save estate tax as well as avoid probate and offer creditor protection of assets. There are also significant income tax consequences of establishing trusts – not only federal but also state tax implications. The District of Columbia and most of the U.S. states have an income tax regime applicable to trusts. Unfortunately, the basis for taxing trusts is not the same under all state laws. As a result, trustees and their advisors are often challenged in determining where trusts must file and pay state taxes. Failure to file in the proper state(s) may result in tax penalties. For existing trusts, there may be opportunities to minimize state income tax depending upon the relevant states and parties. For trusts that are in the planning stage, it’s critical that the income tax effects be considered in advance.

For a more detailed discussion of this topic, please see the complete article.

For questions about these planning topics or other matters, please contact Jean McDevitt, tax principal and private client services lead, at 1.800.244.7444.