Discussion:California Trust Taxation

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Discussion Forum Index --> Tax Questions --> California Trust Taxation

Bengoshi (talk|edits) said:

28 February 2007
Someone asked a similar question before but I can't recall the answer...

Successor trustee of decedent's revocable trust sold real property (situated outside California) at a gain. That sole trustee is a non-resident of California. Of the five noncontingent beneficiaries, only one is a California resident. The proceeds of sale was distributed/credited to the beneficiaries according to trust instrument.

If I understand Cali law correctly, the presence of a Cali resident beneficiary creates a filing obligation for the trust in that state. For whatever reason, my tax software is allocating the income subject to California tax among all the beneficiaries (i.e., even among the nonresidents)... But shouldn't the income passed through be allocated only to the sole California resident on his K-1? I can't figure out how to change this in Ultra Tax (if I'm even suppose to).

Kevinh5 (talk|edits) said:

28 February 2007
have you tried the search field?

Bengoshi (talk|edits) said:

28 February 2007
Thanks for the tip Kevin. After searching the archive, that prior post wasn't quite on point (it discussed the filing requirements for a Cali resident trustee).

On the Cali return, the software is taking the income from all sources and multiplying it by: (the 1 Cali resident beneficiary / total number of beneficiaries). And that amount ("California law" income -- whatever that means) is being allocated among all the beneficiaries on the K-1s. What I'm confused about is if that Cali law income is supposed to be allocated among both resident & nonresident beneficiaries or only to the resident. Any ideas?

Riley2 (talk|edits) said:

28 February 2007
Bengoshi, I am assuming that there are no California trustees.

In the case of a trust, the undistributed income is taxed to the State of CA if all of the non-contingent beneficiaries are CA residents, and would be apportioned if there are non-CA beneficiaries. This rule has no applicability to distributed income.

Therefore, I see no filing requirement in CA at all.

Bengoshi (talk|edits) said:

28 February 2007
Wow, thank you very much Riley. I wasn't aware of the distinction between undistributed and distributed income, but I'm thankful for your help.

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