May
25
NYS Tax Changes to Trusts
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Before April 1, 2014, it was possible to make distributions free of NY income tax to NY resident beneficiaries from trusts which were NY resident trusts but which were drafted in such a way that the trusts were not subject to NY income tax. [Stop reading if you have no interest in such technical discussions!] The trusts that are affected are: Resident non-grantor trusts for which (a) all trustees live outside of NY; (ii) all real and tangible assets in the trust are located outside of NY; and (iii), there is no income that derives or originates in NY (i.e. "source income"). Although these types of trusts were NY resident trusts because the Grantor or creator was a NY resident when the trust became irrevocable, they remain exempt from NY income tax at the trust level. Distributions, on the other hand, of income earned on or after January 1, 2014 and distributed to a NY beneficiary over 21-years old on or after June 1, 2014 will be taxable as NY income to the beneficiary. Another change is significant but will only impact a small sub-set of people. The change relates to certain Incomplete Gift Non-Grantor Trusts ("ING" Trusts). Certain of the ING trusts which are not subject to NYS income tax because of the reasons set out above will now be treated as "grantor trusts" for income tax purposes. A NY grantor of a trust who continues to live in NY will be required to pay NY income tax on the trust income, unless the trust is liqudated before June 1, 2014.

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