Which state are my Irrevocable (Crummey) trusts taxable in?

[OnTheRoadAgain]

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



I have a couple questions regarding which state, my irrevocable trusts are taxable in.

I am the 'grantor' of two Irrevocable trusts (Crummey type) that I created twenty+ years ago when my daughters were infants. We resided in North Carolina, and the trust has a couple references to NC statues in the text. Each daughter has a trust, and is the 'beneficiary' of her trust. My brother is the 'trustee', and is a Georgia resident. I had utilized a NC lawyer, who retired many years ago.

For years, we paid both federal and NC state income taxes. There have been no distributions from the trusts, all income and taxable gains throughout the years have been kept in the trust.

Fast forward to current. Both of my daughters have moved out of state, one now a resident in Va, the other a resident in CO. I am considering moving to Florida within the next couple years. Brother (trustee) is still a resident of Ga.

My questions:
1.) Given beneficiary daughters are not in NC state, is NC still the correct state to pay annual income taxes to, assuming all income is still retained in the trust? (I the grantor, am the only one still residing in NC).
2.) If/when I move to Florida, does the trust tax liability to NC cease? Florida does not have an income tax; Grantor, Beneficiaries, and Trustee would all be out of NC state. Or, does the fact that the trust was originally created while in NC mean that NC taxes will be paid forever to them?

If this is a simple answer for you guys, great! If I need to go to someone here in NC to answer the questions, is it a lawyer type I need, or a CPA type I need to ask, or send a letter to the state tax department?

 

[FlyingRon]

The Crummey trust isn't taxed until the money is withdrawn from the trust and then is taxed as income to the beneficiary (i.e., where they reside). Note that these withdrawals are also subject to the gift tax. It's involved, you might benefit from reading this explanation. http://www.americanbar.org/content/dam/aba/publishing/probate_property_magazine/rppt_mo_premium_rp_publications_magazine_2004_jf_grassi.authcheckdam.pdf

 

[OnTheRoadAgain]

Not sure why a prior response didn't/doesn't post. Let me try again.

Every year as the trust earns dividend income and/or has capital gains, income taxes are due annually. Since there are no distributions to the beneficiary and all income continues to be held in the trust, the trust owes the income tax (both federal and state). 1099's are issued each year from brokerage account using the EIN# of the trust. It's a 'complex' trust, on the federal trust tax forms.

As all who are associated with the trust (beneficiary, trustee, and grantor) are all eventually in states other than NC (where it was originally created), at what point does state income tax cease to be due to NC, and due to some other state instead?

 

[FlyingRon]

Any tax on capital gains or income from trust assets are assigned to the grantor at the time they are accrued. Again, it matters not where the trust was created. It's income/capital gain to the grantor wherever he resides. When the other beneficiaries recive their assets from the trust, they are taxed based on where they reside. The trust has no "residency" of it's own.

 

[OnTheRoadAgain]

It's income/capital gain to the grantor wherever he resides.

I think that's true for a revocable trust, but a grantor of an irrevocable trust has given away the assets and has nothing to do with them anymore. They are part of the trust entity.

 

[LdiJ]

I think that's true for a revocable trust, but a grantor of an irrevocable trust has given away the assets and has nothing to do with them anymore. They are part of the trust entity.

I agree. In Ron's first reply he was thinking about a beneficiary trust and in his second he was thinking about a revocable trust. However an irrevocable trust is an entity of it's own for tax purposes and therefore has to pay tax.

Unfortunately, I am uncertain whether or not the trusts remain as NC trusts and therefore subject to NC tax, if none of the parties (trustee, grantor and beneficiaries) remain in NC. Hopefully someone else will have the answer to that.