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Estate Trust Income Tax

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SSS

Junior Member
What is the name of your state (only U.S. law)? NH

I have a question about an irrevocable trust that was established in the state of MA. The grantor lives in MA, and, while living, is the sole beneficiary of the the income of the trust. Income is distributed to the beneficiary at the discretion of the trustee; income distribution is not required.

This trust usually generates income and has filed federal tax returns (1041) for several years. For the vast majority of years, no income was distributed, and the trust paid income taxes on the income.

I am a co-trustee and live in NH, which has no state income tax. The other co-trustee lives in MD. I have been doing all the paperwork, and the mailing address on the trust is my address in NH. Am I required to file a MA state tax return for the trust for years in which the trust does not distribute income?

When the grantor dies, the trustees are instructed to dissolve the trust and distribute all income and all principal to new named beneficiaries (me and other co-trustee). Will this have to go through probate in MA if the grantor still lives there?

Thank you for your opinions.

SSS.What is the name of your state (only U.S. law)?
 


Kiawah

Senior Member
I'll be anxious to hear the lawyers opinions on this.

I would have thought the answer to your question would be MA, where the grantor is (was?) and assume is the state identified in the trust document, as governing the language of the trust. (And therefore where you also might owe prior state tax to).
 
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SSS

Junior Member
The trust language does state that it is governed under the laws of the Commonwealth of Massachusetts. This is why I now suspect that it must also pay MA state estate income tax. If that is so, then back taxes will be due. Does anyone know the tax form number for MA estate taxes?
 

SSS

Junior Member
That is a very interesting article. I have to figure out what "items of gross income" are defined as (see the text below).

"items of gross income from sources within the Commonwealth, that is, on items of gross income derived from or effectively connected with any trade or business carried on in Massachusetts or derived from the ownership of any interest in real or tangible personal property in Massachusetts"

But basically if capital gains distributions and interest income from an investment account held by a trustee in NH don't sound like they are connected with "trade or business carried on in MA". If so, then the trust itself would not be subject to state income tax. However the beneficiary, who resides in MA, would be subject to state income tax upon receipt of a distribution from the trust.

Is that correct?

SSS
 

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