Dynasty Trust Transfer Advice from Financial Planners

The following outline general provisions related to the transfer of trust assets, taxation, and rules of domiciliary. Review the rule of the individual states involved in both estate formation and the transaction in question. In most states, trust asset transfers are categorized according to three categories of domiciliary: 1) resident, 2) nonresident, and 3) exempt resident.

• Resident –estate asset transfer by will, irrevocable trust, or revocable trust while a transferor is residing in the state are subject to domestic and state taxation rules. Revocable trust transfers are generally eligible for irrevocable status if the transferor is a resident domiciliary in the state where the trust was formed; or has absolved the right to revocation; or by proxy at the time of a decedent’s death.
• Nonresident –revocable trusts may become irrevocable after the transferor is no longer a domiciliary of the state where the trust was formed. Taxation rules apply to property transferred to beneficiaries of other states depending on the domiciliary rules where they reside; or where an estate has a trustee reporting domiciliary in another state.
• Exempt Resident – exemptions apply to certain asset transfers of intangibles and income distribution subject to specific estate rules of an individual estate. Transfers performed by an estate under will guided by the domiciliary of the state where it is administered, or where the trustee is residing in another domiciliary, as well. If it is determined trust income is sourced in a particular jurisdiction with separate rules, or where a trust’s intangible assets are sitused outside the state, an estate’s trust may be exempt from taxation. Exempt resident trusts are responsible for filing an IRS Form IT-205-C with an annual return to certify tax-exempt status.