Discussion:Trust Return - Which State

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Discussion Forum Index --> Tax Questions --> Trust Return - Which State

EL CID (talk|edits) said:

11 September 2007
Hi. This is going to sound like a stupid question. But when dealing with a new trust (complex) where the trust was created upon the death of a taxpayer who resided in Washington DC, but the trustee of the trust resides in Maryland, what determines which state the trust is supposed to file in? Washington DC or Maryland?


KatieJ (talk|edits) said:

12 September 2007

You have to look at the laws of both jurisdictions. States generally tax trusts (other than business trusts) similarly to individuals. That is, a trust that is treated as a resident of the state is required to file income tax returns and (if it has taxable income) pay tax on all of its income, regardless of source. A trust that is treated as a nonresident is required to file only if it has income from a source in the state.

The definition of a "resident" as applied to a trust may be fairly broad. In California, for example, a trust is taxed on all of its income if either the fiduciary or the beneficiary is a resident of the state. A proration applies if there are multiple fiduciaries or multiple beneficiaries, some of whom are residents and some not. Some other states tax a trust as a resident if it was organized under that state's laws. A grantor trust may be taxed as a resident if the grantor was a resident at the time the trust was created. A testamentary trust may be taxed as a resident if the decedent was a resident at the date of death.

My state tax research site is acting up this afternoon so I can't check the MD and DC specifics for you, but it is possible that the trust is required to file in both states. Generally, one jurisdiction will allow credit for the tax paid to the other.

KatieJ (talk|edits) said:

12 September 2007
Ah, my RIA Checkpoint has revived <G>.

If the decedent was domiciled in the District of Columbia at the date of death, a testamentary trust is taxed as a resident of the District. D.C. Code Ann. ยง 47-1809.01

This is the best reference I found on the Maryland taxation of trusts: http://individuals.marylandtaxes.com/estatetax/estatefiduciary.asp. If the trust is administered in Maryland, it appears it will be taxed as a Maryland resident (i.e., on all of its income). Maryland will allow credit for any tax paid to DC, but not in excess of the MD tax.

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