questions regarding estate planning and trust tax
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questions regarding estate planning and trust tax
I'm in California. Recently divorced, have health issue and in the process of setup a trust. Total assets in mid 7 digits. My only child is 20, and he will be the beneficiary and successor trustee. After reading online for a few days, I still have following questions:
1. After I pass away, my revocable trust becomes irrevocable trust. The successor trustee will decide how to distribute the fund in the trust. He can just distribute everything to himself and terminate the trust if the trust allows it?
2. If the trust doesn't allow distribution at once, the trust will need to file tax return every year? And the income tax rate and capital gain tax rate are higher than most individual tax rate at 37% over $13451?
3. Sounds like the trustee should distribute all earnings from the trust to the beneficiary each year at least?
4. How about capital gain from the trust? Is it best to sell the house or transfer the house title to the beneficiary right away so all future capital gains will be taxed at the beneficiary's tax rate? Same for stocks? Or as long as the house is sold by the beneficiary, the capital gain will be taxed at the beneficiary's tax rate, even the house stayed in the trust for 10 years after the grantor passed away? Is there a limitation on step up on basis?
5. I'm aware of the 10-year rule for pretax 401k so I'm planning to leave my 401k to my sister. Her 401k balance is low, she will be retired by then and has lower income tax rate. My kid most likely will be in his earning peak and has higher tax rate. Does this make sense?
6. I've designated beneficiary for my brokerage account. Do I need to change the beneficiary to my trust? I understand that by change the beneficiary to my trust, I can set limitations, so he won't get it outright. He is a responsible college student not very familiar with personal finance (and seems not very interested).
7. Should I consider having a co-trustee for him?
Thanks in advance for all your reply!
1. After I pass away, my revocable trust becomes irrevocable trust. The successor trustee will decide how to distribute the fund in the trust. He can just distribute everything to himself and terminate the trust if the trust allows it?
2. If the trust doesn't allow distribution at once, the trust will need to file tax return every year? And the income tax rate and capital gain tax rate are higher than most individual tax rate at 37% over $13451?
3. Sounds like the trustee should distribute all earnings from the trust to the beneficiary each year at least?
4. How about capital gain from the trust? Is it best to sell the house or transfer the house title to the beneficiary right away so all future capital gains will be taxed at the beneficiary's tax rate? Same for stocks? Or as long as the house is sold by the beneficiary, the capital gain will be taxed at the beneficiary's tax rate, even the house stayed in the trust for 10 years after the grantor passed away? Is there a limitation on step up on basis?
5. I'm aware of the 10-year rule for pretax 401k so I'm planning to leave my 401k to my sister. Her 401k balance is low, she will be retired by then and has lower income tax rate. My kid most likely will be in his earning peak and has higher tax rate. Does this make sense?
6. I've designated beneficiary for my brokerage account. Do I need to change the beneficiary to my trust? I understand that by change the beneficiary to my trust, I can set limitations, so he won't get it outright. He is a responsible college student not very familiar with personal finance (and seems not very interested).
7. Should I consider having a co-trustee for him?
Thanks in advance for all your reply!
Re: questions regarding estate planning and trust tax
You are asking graduate level semester's worth of questions in a penny postcard! Several suggestions. 1) Buy the Nolo Press book on trusts and read it, it will educate you a ton. 2) Search for and read every post by "bsteiner" that you have time for, he's THE expert in this field and posts generously. Likely to chime in. 3) If this is a pressing real time issue, educate yourself and get expert help setting it up correctly, (i.e. much as I (diehard DIY) with that much money and a young heir, you need to get it perfect. My thoughts on the rest:
(1) Yes (2&3) I think if you distribute all the income it avoids trust tax rates and is taxed by beneficiary; documented via an estate tax return and a K-1 to beneficiary (verify with an expert) (4) You get one step up on inheriting, date of death; clueless what happens if the house remains in trust? (5) good idea - shove taxable assets to lower income relatives (6&7) This gets hairy fast. I believe you need another Trustee to control the distributions (friendly Uncle?) or it won't stay out of your heir's hands and estate. With that much money, estate taxes for him are likely to be an issue.
I am deeply interested in this whole subject and trying hard to understand (not a lawyer or CPA, but avid reader).
(1) Yes (2&3) I think if you distribute all the income it avoids trust tax rates and is taxed by beneficiary; documented via an estate tax return and a K-1 to beneficiary (verify with an expert) (4) You get one step up on inheriting, date of death; clueless what happens if the house remains in trust? (5) good idea - shove taxable assets to lower income relatives (6&7) This gets hairy fast. I believe you need another Trustee to control the distributions (friendly Uncle?) or it won't stay out of your heir's hands and estate. With that much money, estate taxes for him are likely to be an issue.
I am deeply interested in this whole subject and trying hard to understand (not a lawyer or CPA, but avid reader).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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Re: questions regarding estate planning and trust tax
Are assets in the mid 7 figures $5 million? If yes, you have the resources to hire an estate atty.
Re: questions regarding estate planning and trust tax
There is a possible bonus regarding leaving a pre-tax retirement account to your sister. If she is no more than 10 years younger than you, she qualifies as an eligible designated beneficiary. This would allow her to withdraw RMDs based on her own life expectancy instead of over 10 years.
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Re: questions regarding estate planning and trust tax
I'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.muddlehead wrote: ↑Mon Jul 04, 2022 5:52 pm Are assets in the mid 7 figures $5 million? If yes, you have the resources to hire an estate atty.
Last edited by Luckylucyy on Mon Jul 04, 2022 6:09 pm, edited 1 time in total.
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Re: questions regarding estate planning and trust tax
That's what I'm thinking too. She is a little older than me.Cranberry wrote: ↑Mon Jul 04, 2022 5:57 pm There is a possible bonus regarding leaving a pre-tax retirement account to your sister. If she is no more than 10 years younger than you, she qualifies as an eligible designated beneficiary. This would allow her to withdraw RMDs based on her own life expectancy instead of over 10 years.
Re: questions regarding estate planning and trust tax
60 pages of boiler plate Sweet Jesus. The purpose of a trust is to transfer property (that's the super easy part), protect the heir from blowing the cash and wrapping a Lamborghini around a tree, and c) TAXES!!!! You need to read the Nolo book and get an expert to explain the tax aspect - that's at least half the issue. Or find a better lawyer. Or maybe a Tax accountant familiar with trusts....Luckylucyy wrote: ↑Mon Jul 04, 2022 6:05 pm
I'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
- FreddieFIRE
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Re: questions regarding estate planning and trust tax
Step away from the checkbook and take a breather. Think about what you wish to accomplish. Do you want your assets to benefit your only child for the remainder of his life? Do you want to protect him from divorcing spouses and creditors? Decide these first. Then, find an estate lawyer who DOES understand taxes (how could somebody help with estate planning without understanding the tax aspects) and work as a team to decide how to set up your estate planning documents. A "responsible college student" is likely fertile ground. You could do a lot worse than just leaving everything to him in trust with an independent trustee until he is 30 years old (at which time he could choose to serve as his own trustee or co-trustee). Don't overthink the trust tax rates. They only apply to trust income, and if assets of the trust generate taxable income they can generally be distributed to the beneficiary with taxes paid at his individual rate. Focus more on asset protections and less on independent control. I am not a lawyer or accountant.
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
- FreddieFIRE
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Re: questions regarding estate planning and trust tax
You're totally ignoring asset protections?
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
Re: questions regarding estate planning and trust tax
I would put asset protection under the "protect the heir" section.... which of course can include gold-digging future spouses, creditors, estate taxation and really fast cars! Good point.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
Re: questions regarding estate planning and trust tax
The trustee can distribute to he beneficiary according to the terms of the trust. The beneficiary could be the same person as the trustee.Luckylucyy wrote: ↑Mon Jul 04, 2022 1:46 pm I'm in California. Recently divorced, have health issue and in the process of setup a trust. Total assets in mid 7 digits. My only child is 20, and he will be the beneficiary and successor trustee. After reading online for a few days, I still have following questions:
1. After I pass away, my revocable trust becomes irrevocable trust. The successor trustee will decide how to distribute the fund in the trust. He can just distribute everything to himself and terminate the trust if the trust allows it?
I suspect every year but I don’t know. Yes any income will be taxed at trust tax rates and brackets which are accelerate to higher rates much faster than individual tax brackets.2. If the trust doesn't allow distribution at once, the trust will need to file tax return every year? And the income tax rate eand capital gain tax rate are higher than most individual tax rate at 37% over $13451?
I’m not sure.3. Sounds like the trustee should distribute all earnings from the trust to the beneficiary each year at least?
In general capital gains step up in basis on death of the original owner.4. How about capital gain from the trust? Is it best to sell the house or transfer the house title to the beneficiary right away so all future capital gains will be taxed at the beneficiary's tax rate? Same for stocks? Or as long as the house is sold by the beneficiary, the capital gain will be taxed at the beneficiary's tax rate, even the house stayed in the trust for 10 years after the grantor passed away? Is there a limitation on step up on basis?
Perhaps but if your son is already in the highest bracket I’m not really sure. Really would need more specific info.5. I'm aware of the 10-year rule for pretax 401k so I'm planning to leave my 401k to my sister. Her 401k balance is low, she will be retired by then and has lower income tax rate. My kid most likely will be in his earning peak and has higher tax rate. Does this make sense?
If you want the trust to bypass probate the account should be re titled to the RLT. Naming it as beneficiary will get it there but probably still goes through probate. It really depends on what you are trying to accomplish.6. I've designated beneficiary for my brokerage account. Do I need to change the beneficiary to my trust? I understand that by change the beneficiary to my trust, I can set limitations, so he won't get it outright. He is a responsible college student not very familiar with personal finance (and seems not very interested).
For a college age person with little financial experience, personally, yes I’d recommend a co trustee, at least up to a certain age, like maybe 30.7. Should I consider having a co-trustee for him?
Thanks in advance for all your reply!
Re: questions regarding estate planning and trust tax
To put this in perspective. Previously I had an estate planning attorney and tax lawyer who was recommended to me from a coworker whom he had encountered at a local neighborhood meeting/ presentation. He created a revocable living trust document that was dozens of pages with all kind of boiler plate language that seemed irrelevant. Now we are working with an attorney recommended by a well known estate planning attorney here and that person is redrafting the trust and it will be about 4 pages.Luckylucyy wrote: ↑Mon Jul 04, 2022 6:05 pmI'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.muddlehead wrote: ↑Mon Jul 04, 2022 5:52 pm Are assets in the mid 7 figures $5 million? If yes, you have the resources to hire an estate atty.
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Re: questions regarding estate planning and trust tax
Good point. Initially I was thinking of have my kid as trustee and beneficiary and hand over everything outright except 401k. Now I'm thinking of the need of a co-trustee to provide some protection.FreddieFIRE wrote: ↑Mon Jul 04, 2022 8:43 pm Step away from the checkbook and take a breather. Think about what you wish to accomplish. Do you want your assets to benefit your only child for the remainder of his life? Do you want to protect him from divorcing spouses and creditors? Decide these first. Then, find an estate lawyer who DOES understand taxes (how could somebody help with estate planning without understanding the tax aspects) and work as a team to decide how to set up your estate planning documents. A "responsible college student" is likely fertile ground. You could do a lot worse than just leaving everything to him in trust with an independent trustee until he is 30 years old (at which time he could choose to serve as his own trustee or co-trustee). Don't overthink the trust tax rates. They only apply to trust income, and if assets of the trust generate taxable income they can generally be distributed to the beneficiary with taxes paid at his individual rate. Focus more on asset protections and less on independent control. I am not a lawyer or accountant.
Re: questions regarding estate planning and trust tax
Since you're in California, you would probably have a revocable trust.Luckylucyy wrote: ↑Mon Jul 04, 2022 1:46 pm I'm in California. Recently divorced, have health issue and in the process of setup a trust. Total assets in mid 7 digits. My only child is 20, and he will be the beneficiary and successor trustee. After reading online for a few days, I still have following questions:
1. After I pass away, my revocable trust becomes irrevocable trust. The successor trustee will decide how to distribute the fund in the trust. He can just distribute everything to himself and terminate the trust if the trust allows it?
2. If the trust doesn't allow distribution at once, the trust will need to file tax return every year? And the income tax rate and capital gain tax rate are higher than most individual tax rate at 37% over $13451?
3. Sounds like the trustee should distribute all earnings from the trust to the beneficiary each year at least?
4. How about capital gain from the trust? Is it best to sell the house or transfer the house title to the beneficiary right away so all future capital gains will be taxed at the beneficiary's tax rate? Same for stocks? Or as long as the house is sold by the beneficiary, the capital gain will be taxed at the beneficiary's tax rate, even the house stayed in the trust for 10 years after the grantor passed away? Is there a limitation on step up on basis?
5. I'm aware of the 10-year rule for pretax 401k so I'm planning to leave my 401k to my sister. Her 401k balance is low, she will be retired by then and has lower income tax rate. My kid most likely will be in his earning peak and has higher tax rate. Does this make sense?
6. I've designated beneficiary for my brokerage account. Do I need to change the beneficiary to my trust? I understand that by change the beneficiary to my trust, I can set limitations, so he won't get it outright. He is a responsible college student not very familiar with personal finance (and seems not very interested).
7. Should I consider having a co-trustee for him?
If you leave $5 million to your son outright, that will throw it into his estate for estate tax purposes (and expose it to his creditors and spouses). That could cost millions of dollars of unnecessary estate tax in his estate. You could instead leave it to him in trust. If you're recently divorced, your ex-spouse should consider doing the same.
You could give him the right to become a trustee and to remove and replace his co-trustee (provided the replacement trustee isn't a close relative or subordinate employee) upon reaching a specified age. Or you could let him be a trustee now. He would need a co-trustee to authorize distributions to him.
Yes, trusts are generally taxable at higher rates than individuals. The trustees will decide each year how much to distribute and how much to retain, taking into account income taxes and any other factors they deem relevant.
California taxes trusts based on the location of the trustees. If it's feasible, you may want to consider having trustees outside California (but not in states that tax trusts based on the location of the trustees). As long as your son has the right to become a trustee, and the power to remove and replace trustees, he'll effectively control the trust.
Most of the pages are standard. You should focus on the ones that apply to you.JBTX wrote: ↑Tue Jul 05, 2022 9:20 amTo put this in perspective. Previously I had an estate planning attorney and tax lawyer who was recommended to me from a coworker whom he had encountered at a local neighborhood meeting/ presentation. He created a revocable living trust document that was dozens of pages with all kind of boiler plate language that seemed irrelevant. Now we are working with an attorney recommended by a well known estate planning attorney here and that person is redrafting the trust and it will be about 4 pages.Luckylucyy wrote: ↑Mon Jul 04, 2022 6:05 pm ...
I'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.
It would be hard to do this in 4 pages, though it could be done in fewer than 60 pages.
It would probably be more efficient to work with a trusts and estates lawyer who's familar with the tax issues than to learn the tax issues.
Re: questions regarding estate planning and trust tax
Seconding the suggestion about searching Nolo Press for two easy-to-read books to educate yourself. Since Nolo started in Berkeley, they have a couple of books that focus on CA probate and CA trusts. After getting up to speed on the basics, you can have a more intelligent discussion with your Trust attorney.
https://www.nolo.com/legal-encyclopedia ... e-planning
https://www.nolo.com/legal-encyclopedia ... e-planning
Last edited by Big Dog on Tue Jul 05, 2022 10:25 am, edited 2 times in total.
Re: questions regarding estate planning and trust tax
That doesn't sound right. Even a LegalZoom RLT runs 10 pages without the signing blocks. The pour over will alone runs six.JBTX wrote: ↑Tue Jul 05, 2022 9:20 amTo put this in perspective. Previously I had an estate planning attorney and tax lawyer who was recommended to me from a coworker whom he had encountered at a local neighborhood meeting/ presentation. He created a revocable living trust document that was dozens of pages with all kind of boiler plate language that seemed irrelevant. Now we are working with an attorney recommended by a well known estate planning attorney here and that person is redrafting the trust and it will be about 4 pages.Luckylucyy wrote: ↑Mon Jul 04, 2022 6:05 pmI'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.muddlehead wrote: ↑Mon Jul 04, 2022 5:52 pm Are assets in the mid 7 figures $5 million? If yes, you have the resources to hire an estate atty.
Are you sure that you aren't looking at the trust summary? Those usually run 2-4 pages. Maybe six.
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Re: questions regarding estate planning and trust tax
Thanks bsteiner! I'm going through your posts to learn as CAsage suggested.
To clarify, 60 pages is the whole package, including will, PoA, etc.
I thought I have a very simple case so didn't do much research before working with an attorney. Now I feel bad to switch since the attorney is very nice.
From what I learned, the trust won't have income tax if the income is distributed to beneficiary every year. The trust won't have capital gain tax if the trust doesn't sell any asset. The trust could distribute asset to the beneficiary prior to sell and let the beneficiary sell so it is counted as the beneficiary's capital gain. Am I getting this right?
To clarify, 60 pages is the whole package, including will, PoA, etc.
I thought I have a very simple case so didn't do much research before working with an attorney. Now I feel bad to switch since the attorney is very nice.
From what I learned, the trust won't have income tax if the income is distributed to beneficiary every year. The trust won't have capital gain tax if the trust doesn't sell any asset. The trust could distribute asset to the beneficiary prior to sell and let the beneficiary sell so it is counted as the beneficiary's capital gain. Am I getting this right?
Re: questions regarding estate planning and trust tax
That was just the trust. That did not include any of the pour over wills and other documents.Lee_WSP wrote: ↑Tue Jul 05, 2022 10:22 amThat doesn't sound right. Even a LegalZoom RLT runs 10 pages without the signing blocks. The pour over will alone runs six.JBTX wrote: ↑Tue Jul 05, 2022 9:20 amTo put this in perspective. Previously I had an estate planning attorney and tax lawyer who was recommended to me from a coworker whom he had encountered at a local neighborhood meeting/ presentation. He created a revocable living trust document that was dozens of pages with all kind of boiler plate language that seemed irrelevant. Now we are working with an attorney recommended by a well known estate planning attorney here and that person is redrafting the trust and it will be about 4 pages.Luckylucyy wrote: ↑Mon Jul 04, 2022 6:05 pmI'm working with an attorney and he has a 60 page draft for me to review. I'm trying to understand so I know what to review/ask. I suppose most of those 60 pages are standard language. And this attorney said he is not a tax attorney so I'm learning the tax aspect of it.muddlehead wrote: ↑Mon Jul 04, 2022 5:52 pm Are assets in the mid 7 figures $5 million? If yes, you have the resources to hire an estate atty.
Are you sure that you aren't looking at the trust summary? Those usually run 2-4 pages. Maybe six.
The trust agreement is 8 pages including signature page, 7 page without.
Ours is in TX FWIW.
Re: questions regarding estate planning and trust tax
Sixty pages for the whole estate planning package is understandable.
In most cases, if the trust owns mutual funds that have capital gains, the trust will owe capital gains taxes, even if it doesn’t sell any asset.
The trust can distribute assets in-kind to the beneficiary so the beneficiary can sell them and be liable for the capital gains taxes.
However, it might also be possible in your state to structure the trust to give the trustee flexibility to arrange for either the beneficiary or the trust to be responsible for capital gains taxes.
Even if your trust attorney is not a tax attorney, he or she should be able to answer your trust-related tax questions.
The trust won’t have ordinary income tax liability if the Net Distributable Income (a trust accounting term) of the trust is distributed to the beneficiary each year. I recommend hiring a CPA to prepare trust tax returns every year, in part so he or she can help with tax planning.From what I learned, the trust won't have income tax if the income is distributed to beneficiary every year. The trust won't have capital gain tax if the trust doesn't sell any asset. The trust could distribute asset to the beneficiary prior to sell and let the beneficiary sell so it is counted as the beneficiary's capital gain. Am I getting this right?
In most cases, if the trust owns mutual funds that have capital gains, the trust will owe capital gains taxes, even if it doesn’t sell any asset.
The trust can distribute assets in-kind to the beneficiary so the beneficiary can sell them and be liable for the capital gains taxes.
However, it might also be possible in your state to structure the trust to give the trustee flexibility to arrange for either the beneficiary or the trust to be responsible for capital gains taxes.
Even if your trust attorney is not a tax attorney, he or she should be able to answer your trust-related tax questions.
- FreddieFIRE
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Re: questions regarding estate planning and trust tax
Really? So if a trust holds $100K of stocks in January and they're worth $120K in December, the trust has to pay capital gains taxes on $20K? I've never heard of this before.
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
Re: questions regarding estate planning and trust tax
Cap gains on realized gains(from MF cap gain distributions or otherwise) would be taxable. Increases in value are not.FreddieFIRE wrote: ↑Tue Jul 05, 2022 1:52 pmReally? So if a trust holds $100K of stocks in January and they're worth $120K in December, the trust has to pay capital gains taxes on $20K? I've never heard of this before.
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Re: questions regarding estate planning and trust tax
Thanks. I'm thinking perhaps the other poster was referring to capital gains distributions.pshonore wrote: ↑Tue Jul 05, 2022 2:13 pmCap gains on realized gains(from MF cap gain distributions or otherwise) would be taxable. Increases in value are not.FreddieFIRE wrote: ↑Tue Jul 05, 2022 1:52 pmReally? So if a trust holds $100K of stocks in January and they're worth $120K in December, the trust has to pay capital gains taxes on $20K? I've never heard of this before.
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
Re: questions regarding estate planning and trust tax
Yes, I was referring to capital gains distributions, which is approximately the same as the total amount of realized capital gains, as mutual funds must distribute essentially all realized capital gains annually. As a result, the trustee should still consider capital gains when making investment decisions, and should choose tax efficient investments. I apologize for the confusion.
Increases in value of the mutual fund are unrealized capital gains and are not taxable to either the trust or the beneficiary if the shares are not sold, as the OP stated.
Increases in value of the mutual fund are unrealized capital gains and are not taxable to either the trust or the beneficiary if the shares are not sold, as the OP stated.
Re: questions regarding estate planning and trust tax
If the trust is established in California (where my wife & I currently live), and I select a trustee outside of California as co-trustee (like Vanguard, Fidelity, or Schwab), is trust income not taxed by California after our death? (assuming beneficiaries do not live in California).bsteiner wrote: ↑Tue Jul 05, 2022 10:00 am .......
Since you're in California, you would probably have a revocable trust.
.........
California taxes trusts based on the location of the trustees. If it's feasible, you may want to consider having trustees outside California (but not in states that tax trusts based on the location of the trustees).
.........
Or does the trust location (situs?) need to move out of California? Can a Calif attorney include that direction that the trust location must move to a state where the Vanguard/Fidelity/Schwab is located? Or do I need to have an attorney from out of state generate the trust document?
I wish I had learned about index funds 25 years ago
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Re: questions regarding estate planning and trust tax
I am confused about this too. We have designated a corporate trustee based in Florida as successor trustee. When I asked about California tax treatment, this was the reply:JoinToday wrote: ↑Tue Jul 05, 2022 11:21 pmIf the trust is established in California (where my wife & I currently live), and I select a trustee outside of California as co-trustee (like Vanguard, Fidelity, or Schwab), is trust income not taxed by California after our death? (assuming beneficiaries do not live in California).bsteiner wrote: ↑Tue Jul 05, 2022 10:00 am .......
Since you're in California, you would probably have a revocable trust.
.........
California taxes trusts based on the location of the trustees. If it's feasible, you may want to consider having trustees outside California (but not in states that tax trusts based on the location of the trustees).
.........
Or does the trust location (situs?) need to move out of California? Can a Calif attorney include that direction that the trust location must move to a state where the Vanguard/Fidelity/Schwab is located? Or do I need to have an attorney from out of state generate the trust document?
"Taxes: According to CA law, there are several circumstances in which a CA situs trust would be subject to CA state income taxes, including 1) The beneficiary resides in CA, 2) Trust administration takes place in CA (i.e. CA brick and mortar trust office), and/or 3) The trust owns real property in CA. For your situation, if your beneficiary resides in CA, then the trust would have to pay CA taxes. It’s all based on the laws that govern the trust document."
Unless this reply is inaccurate, it seems CA tax will need to be paid even if the trustee is located outside of CA if the beneficiary resides in CA or the trust owns property in CA.
Re: questions regarding estate planning and trust tax
It's where the trustees are located. In the case of a corporate trustee, it's where the trustee transacts the major portion of its administration of the trust. Calif. Rev. & Tax. Code § 17742(b): https://leginfo.legislature.ca.gov/face ... nNum=17742.JoinToday wrote: ↑Tue Jul 05, 2022 11:21 pmIf the trust is established in California (where my wife & I currently live), and I select a trustee outside of California as co-trustee (like Vanguard, Fidelity, or Schwab), is trust income not taxed by California after our death? (assuming beneficiaries do not live in California).bsteiner wrote: ↑Tue Jul 05, 2022 10:00 am .......
Since you're in California, you would probably have a revocable trust.
.........
California taxes trusts based on the location of the trustees. If it's feasible, you may want to consider having trustees outside California (but not in states that tax trusts based on the location of the trustees).
.........
Or does the trust location (situs?) need to move out of California? Can a Calif attorney include that direction that the trust location must move to a state where the Vanguard/Fidelity/Schwab is located? Or do I need to have an attorney from out of state generate the trust document?
It doesn't matter who prepares the trust.