Generally, a trust is taxable in California if a fiduciary or beneficiary (other than a contingent beneficiary) is a resident of California under California Revenue and Taxation Code 17742. This is true even if the original settlor was not a resident of California.
This means even if a non-California resident settlor creates a trust outside of California, with all non-California resident beneficiaries, the trust could still eventually be subject to taxation in California.
How does this happen? If a trust is ongoing for a number of years, a corporate fiduciary may need to step in once there all of the successor trustees in the trust document have been exhausted. If the corporate fiduciary who steps in is in California, the trust will be subject to tax in California.
This seems an unfortunate result. At Mendes Weed, LLP, we participate in the Conference of California Bar Associations each year to try to enact and change legislation. This year, we have drafted Resolution 05-07-2018 which addresses this issue of unintended California taxation of an out-of-state trust.
We advocate for our clients in every way that we can. When our clients have legal issues that come up, and we do not believe the law properly addresses their issue, we work to change that.
Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.
The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.
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Mendes Weed, LLP offices are located in Walnut Creek and our skilled attorneys provide family, tax, business and trust law assistance for clients. For your convenience, we also have attorneys' offices in San Francisco and Sacramento by appointment only.
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Walnut Creek Main Office
1990 N. California Boulevard
Walnut Creek, CA 94596
San Francisco Office
201 Spear Street
San Francisco, CA 94105
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770 L Street
Sacramento, CA 95814
By appointment only.