Wednesday, July 14, 2021
This webinar will provide tax professionals and advisers with a practical guide into various states’ rules governing nonresident trusts’ income tax treatment with multistate income or beneficiary connections. The panel will address state taxation of trusts in light of the Supreme Court’s grant of certiorari to North Carolina Department of Revenue v. the Kaestner 1992 Family Trust. The panel will discuss critical topics relevant to resident and nonresident trusts, focusing on the allocation of state-sourced income between trust and beneficiaries in nonresident trusts with resident beneficiaries. The webinar will also identify states that deviate from federal treatment and those states whose definitions conform to federal but have different calculation bases.
State income tax treatment of trust income is often considerable and an unanticipated expense. Calculating and reporting these expenses becomes an even more significant challenge for tax advisers if the trust has multistate contacts, either because of different resident states for settlors, beneficiaries, or trustees, or because of business operations in more than one state.
The majority of states impose an income tax on resident trusts and state-sourced income of nonresident trusts. As with virtually all multistate taxation issues, various conflicting state laws create tremendous tax compliance issues for tax advisers. Just determining whether a trust is resident or nonresident can present a severe challenge.
Additional complexity arises in navigating the rules determining when to allocate income to a trust instead of its beneficiaries: most states tax nonresident trusts and nonresident beneficiaries only on income sourced to the state. However, when a nonresident trust has income or loss from multiple states, determining the amounts taxed at trust vs. beneficiary level is not clear.
Kirsten Wolff, Partner, Sideman & Bancroft LLP
Julian A. Fortuna, Partner, Taylor English Duma
Jeannette Yazedjian, Of Counsel, Karlin & Peebles