You may desire to transfer a trust to a more advantageous location for several reasons. For example, to prevent or minimize state income tax on the trust’s accumulated capital gains or regular income. To achieve this, you must first be aware of the risks involved in moving a trust to another state.

Revocable trust vs. irrevocable trust

Retirement is typical in states with more benevolent tax regulations. Nevertheless, your trusts do not necessarily follow you because you relocate to a jurisdiction with no income or estate taxes. Instead, your state of residence typically taxes you for individual income tax purposes. Yet, the situs determines the state in which a trust files taxes.

A trust “moves” by switching its situs from one state to another. Typically speaking, a revocable trust is unaffected by this. However, you could change a revocable trust’s situs by modifying it. If that is not an option, you can also revoke the trust and create a new one in the desired jurisdiction.

The text of the trust document will determine whether a trust can move if it is irrevocable in most cases. Many trusts indicate that the laws of a particular state govern them. In such cases, even if the trust does move, the state’s laws may still be in effect. Certain trusts explicitly permit the transfer of the trust from one jurisdiction to another by the trustee or beneficiaries.

If the trust document neither specifies a situs nor sets forth processes for modifying it, the determination of the trust’s situs comes from several variables. They include:

1. Location of the beneficiaries
2. State of the trust’s administration
3. State where the trustee resides
4. Residence of the person who established the trust
5. Applicability of any applicable state law
6. Location of any real estate owned by the trust

Identifying the risks involved

The uninformed face significant hazards when moving a trust. For instance:

• You can unintentionally shorten the life of a trust if you transfer it from a state that accepts perpetual trusts to one that doesn’t.
• Some states impose taxes on all state-sourced income. No matter where the trust is situated, the state may tax the income if your trust owns real estate or ownership stakes in a company located there.
• The same income may occasionally be subject to taxation in more than one state due to inconsistencies between state legislation.

Additionally, consider additional taxes that could affect your decision, such as the intangibles, property, and dividend and interest taxes.

Moving a trust to another state

Moving a trust could result in tax savings and other advantages. However, remember that state-by-state variations in trust law make it difficult to generalize about them. We can assist you in deciding whether relocating a trust is the best course of action for you. Contact our RRBB accountants and advisors to discuss this further.

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