Trusts and Estates

Ca. Trs. & Estates Quarterly 2015, Volume 21, Issue 3


By Richard S. Kinyon, Esq.,* Kim Marois, Esq.,** and Sonja K. Johnson, Esq.***1

Reprinted with the permission of The American College of Trust and Estate Counsel.

California’s income taxation of trusts has unpleasantly surprised many trust fiduciaries and beneficiaries. Its unique method of taxation, based on the residence of the trust’s fiduciaries and beneficiaries (and regardless of the residence of the settlor), may affect trustees and beneficiaries (as well as their lawyers and other advisors) far beyond the California borders.

For example, consider an irrevocable, non-grantor trust2 established by an Illinois resident that is administered by two co-trustees, one of whom is an Illinois resident while the other resides in California. All beneficiaries of the trust also reside in Illinois. Despite the predominantly non-California connections, and even if the Illinois co-trustee is more actively involved in the administration of the trust, half of the trust’s undistributed net income is currently taxable by California.

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