When setting up a Trust it is important to have knowledge of State tax laws because each state has its own unique set of rules. If a Trust investor is not careful they could end up paying a tax in multiple different states. “There are two types of trusts for tax purposes, grantor and nongrantor.” In a grantor trust the income-tax items are passed through the trust creator. With a non grantor trust the income that is accumulated is taxed at the trust level. The overlapping and constantly changing rules in different states can get complex. State governments that want more revenue and wealthy families that want to reduce their tax liabilities play a game of cat and mouse trying to stay ahead of each other.
See Amy Feldman, Can Another State Tax Your Trust?, Barron’s, May 16, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
