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.
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