own little unique twists and turns,” says Heather Flanagan, a senior wealth planner at PNC Wealth
Management. “It’s kind of a hodgepodge right now. It would be nice to have some uniform law.”
Everyone knows that nothing is that simple when it comes to taxes. If things were simple, then a trust
could be created under the laws of a given state and would only be subject to taxation in that state. But
that is just not always the case.
Trusts are sometimes subject to taxation in the state in which they were formed, the state where the
trust creator lives, the state where the trustee lives, the state where a beneficiary lives and the state
where trust property is held.
In a recent article titled "Can Another State Tax Your Trust?," Barron's points out how confusing and
difficult it can be to navigate the tax laws of many different states that might want to claim the right to
tax a trust.
The problem is that there are no standard, nationwide rules about which states can tax a trust.
If the trust is deemed to have a close enough connection to a state, a "nexus" in legalese, then a state
can tax the trust.
What constitutes a close enough connection to any given state depends on the laws and court rulings of
the state that wishes to impose a tax on a trust.
Nevertheless, with states often facing revenue shortfalls, it is no surprise that legislatures are
continuously passing laws in an attempt to mandate that more and more trusts can be taxed by their
Because of these state tax issues, it is very important that you have your trust created by an experienced
estate planning attorney who can help you navigate tax issues.
Remember also to revisit your trust with your attorney from time to time as state tax laws do change.
When it comes to any government and taxes, you need to stay involved to minimize the tax burdens on
your trust. Attend one of our free workshops for more information!
Reference: Barron's (May 16, 2015) "Can Another State Tax Your Trust?"