Individuals who have created multiple trusts in their estate plan that are subject to high state income taxes may recognize significant tax savings by moving those trusts to a state with lower (or no) income taxes. Changing the residence of a trust, or “situs,” should not be undertaken without consulting your advisors, including your trust and estate attorney.
What’s the Tax Impact?
Only irrevocable nongrantor trusts are subject to federal and state tax at the trust level. The taxes generally apply to undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.