How to avoid state income tax on your Massachusetts trustSubmitted by Financial Planning Solutions, LLC on April 5th, 2018
Anyone who has a trust probably knows that the federal tax rates that apply to trust income and capital gains are much higher and kick-in sooner than on income from earnings or other sources, e.g., ordinary income. As a result, taxes can take a significant bite out of trust assets. And your trust pays Massachusetts state income tax, too, but there is a way to avoid it.
Every Massachusetts trust is required to file a Massachusetts Fiduciary Income Tax return and pay tax on income earned by it. For a "Resident Inter Vivos Trust" to be subject to the taxing jurisdiction of Massachusetts, at least one trustee must be a resident of Massachusetts per Massachusetts General Laws Chapter 62, § 10(c) and 830 Code of Massachusetts Regulations §62.10.1(1)(b). The residency of the trust beneficiary is not a factor.1
The way to avoid this tax is to create a non-resident trust by simply appointing a qualified out-of-state trustee in a jurisdiction where there is no fiduciary income tax such as Florida (FL). In addition, you cannot have any trustee who resides in Massachusetts.
Don’t know anyone you can trust to serve as trustee in Florida? No problem.
This can be resolved by appointing a professional trustee. We recommend selecting a trustee with experience in trust administration, investment oversight, sensitivity to family issues, and attention to detail. If your trust selects an out-of-state, sole trustee, your Massachusetts inter-vivos trust will no longer be subject to Massachusetts fiduciary income tax.
If you want to know more, give us a call. We can refer you to a professional trustee that is appropriate for your trust.
1Source: Robert Carlson, Esq., www.myhousecallattorney.com, 904-374-2487.
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