samsmith wrote: ↑Fri Nov 27, 2020 12:12 pm
... if a trust created by a NY grantor at the time it becomes irrevocable (such as a revocable trust at the death of a NY grantor) and then has no trustee in NY, no real or tangible property in NY, and no income from sources in NY of a type on which a nonresident would be taxed - that trust would not be taxed to NY. And if the successor trustees were in states that taxed trusts based on on where the grantor lives than the trust may not be taxable to either state. I think (as I believe bsteiner is implying this is something that happens on occasion and is fact specific. I wonder if bsteiner can add to his post regarding:
1) What he means " New York has a throwback rule, though it's not as comprehensive as California's."?
2) If a revocable trust owned the NY grantor's home at time of his death ( at this was only "nexus" to NY) and sold the home during that same year - so trust owned no NY property at year end (and no profit on the home sale since sale was soon after grantor's death and thus the home's basis (step up at death) reasonably equaled the sale price. Does this require a NY tax return for trust?
This happens more than just "on occasion." With state and local income tax rates as high as 13.3% in California,12.696% in NYC, and in the 10% range in some other states, we consider state income taxation of trusts whenever we're creating trusts, or preparing Wills that provide for beneficiaries in trust. Where it's practical, we try to avoid having trusts be subject to state income tax. Since (except for retirement benefits) trusts mainly receive dividends and capital gains, avoiding state income taxes can substantially reduce the income tax burden on a trust.
Revocable trusts are not commonly used in New York. However, if an estate will receive a large amount of income during the administration period, that might be a case where a revocable trust would make sense.
Like many states, New York treats a trust as a resident trust if it was created by a New York grantor or testator. However, if there's no trustee in New York, no real or tangible property in New York, and no New York source income, it won't be taxable in New York. The trustee will file a return and claim exempt status on Form IT-205-C: https://www.tax.ny.gov/pdf/current_form ... ill_in.pdf
If the trust owned real estate in New York (such as the grantor's or testator's home), then, at least until the property is sold, it won't qualify for the exemption. The gain on the sale of the property, if any (there might not be any gain if it was a revocable trust) would be taxable, as would any other income through the date the real estate was sold. (TSB-A-10(4)I says that you bifurcate the year if there ceases to be a New York trustee during the year, which suggests that you would also bifurcate the year if the New York real property is sold during the year: https://www.tax.ny.gov/pdf/advisory_opi ... a10_4i.pdf
New York enacted a throwback rule in 2014. It's based on the pre-1998 Federal throwback rule, a form of which still exists for foreign trusts. If a New York exempt resident trust accumulates income in one year and distributes it to a New York resident beneficiary in a later year, the beneficiary will be taxable on that income. It's complicated (see the form, https://www.tax.ny.gov/pdf/current_form ... ill_in.pdf
, and the instructions, https://www.tax.ny.gov/pdf/current_forms/it/it205ji.pdf
). As set forth on the instructions, there are exceptions, including income accumulated before 2014, income accumulated before the beneficiary became a New York resident, income accumulated before the beneficiary reached age 21, and capital gains not included in distributable net income.
California's throwback rule is more comprehensive.