Wealthy taxpayers have now experienced the impact of higher federal and state income tax rates for a full year. Many have created or would like to create trusts for their children and grandchildren, which also could be subject to extraordinarily high income tax rates. In California, for example, trust taxable income is subject to state income tax at a rate as high as 13.3%.2How can a California resident avoid such exorbitant taxes on a trust’s income? The solution is to create a trust beyond the scope of California income tax in one of several income tax friendly states – such as Nevada, Delaware, Wyoming and others. The wealth accumulation advantage of avoiding California state income tax on trust income over time is dramatic.
How Does California Tax Trust Income?
First, if a trust is a “grantor trust” for federal income tax purposes, California and other states will tax all trust income directly to a grantor that only resides in that state. Therefore, this article considers “non-grantor” trusts for this strategy.
Please see full article below for more information.
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