To join in on this discussion, you must first log in.

Discussion:VA Trust Question

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> VA Trust Question


Discussion Forum Index --> Tax Questions --> VA Trust Question

Barbie (talk|edits) said:

16 June 2008
This is a complex NJ Trust.

Trustee sold property in NJ, generating only income in 2007. Nothing was distributed to beneficiaries and the Trust paid the taxes (with extension). Then Trustee and one of two beneficiaries moved to VA. (Trustee is not a beneficiary.)

Does the trust have to file a VA Return? I'm thinking that there would be no VA income since the only transaction occurred before the move to VA. Is this correct?

My understanding is that in the future VA will require a return if there is any income to the Trust, whether or not anything is passed to the beneficiaries since the Trustee now resides there.

Marcilio (talk|edits) said:

16 June 2008
I'm thinking that the trust is still a NJ trust and the tax reporting goes to that state. You need to find out how each state treats the situs of the trust itself, not the trustee.

Dennis (talk|edits) said:

16 June 2008
The manner in which the trust was created is also germane. A testamentary trust will be treated differently than an inter vivos vehicle

KatieJ (talk|edits) said:

17 June 2008
Trusts are generally taxed under rules similar to individuals. A resident trust is taxed on all of its income, regardless of source; a nonresident trust is taxable only on income from a source within the state.

Every state has its own definition of a resident trust, or a trust that is taxable on all of its income, regardless of source. Some states define a resident trust to include any trust organized under its laws, or a trust that is administered in the state, or a trust created by the will or grant of a person domiciled in the state at the time the property is transferred, or a trust with one or more resident beneficiaries.

As it happens, Virginia defines a resident trust as one that is (1) created by the will of a decedent who was a VA domiciliary at the date of death, or (2) created by, or consisting of property of, a person domiciled in VA; or (3) administered in VA, e.g. by a resident fiduciary or under the supervision of a VA court. Va. Code Ann. §58.1-302 ; Va. Admin. Code 23 §10-115-10. Barbie's trust is a VA resident trust, taxable on all of its income (and required to file a VA return even if it has no taxable income), from the date it began to be administered by a resident trustee. In VA the residence of the beneficiary has no significance.

New Jersey defines a resident trust as one that either (1) consists of property transferred by the will of a decedent who was a NJ domiciliary at the date of death, or (2) consists of property transferred by a person who was domiciled in NJ at either (a) at the time the property was transferred to the trust if the trust was irrevocable at that time, or if the trust is revocable and has not subsequently become irrevocable or (b) at the time a previously revocable trust became irrevocable. N.J. Rev. Stat. §54A:1-2(o); Instructions to Form NJ-1041.

So, you see, in NJ it doesn't matter where the trust is administered; residence is determined by the domicile of the grantor at the date the trust was created or became irrevocable. Barbie's trust presumably is also a resident of NJ and must continue to file there and pay tax on all of its income. You will probably find the other-state-tax credit provisions fairly generous; one state will almost certainly allow credit for any tax paid to the other.

In California, just for comparison purposes, a trust is taxed on all of its income if either the fiduciary or the beneficiary is a California resident. If there is more than one fiduciary, or more than one beneficiary, non-California source income of the trust is taxable in proportion to the number of resident fiduciaries or beneficiaries. The residence of the grantor is irrelevant.

So, no point in guessing. You have to look it up. Every state is a little different.

Barbie (talk|edits) said:

17 June 2008
Thanks for the responses, especially Katie. From what I had previously read,I understood that the trust is and always will be a NJ resident trust since the decedent was a NJ resident at the time of death. As I was finishing the Fed/NJ '07 returns, I suddenly wondered if filing needed to be done in VA but it appears no.

The only asset in the trust was a house that was sold in '07. The proceeds were invested into another house in VA. There won't be any more income until/unless the VA house is sold, so as I read the fiing requirements, if there is no income in a year, no trust return is required. If/when the VA house is sold returns will have to be filed in both NJ and VA. Correct?

KatieJ (talk|edits) said:

17 June 2008
Yes, the trust is a VA resident from the date the fiduciary became a resident, but you only need to file if there is income. When the house is sold, returns will be required in both NJ and VA.

If there are beneficiaries residing in states other than NJ and VA, you should check the laws of their states of residence to see if returns are required there as well (e.g., California).

To join in on this discussion, you must first log in.
Personal tools