Resident trust

How it works

State rules determine whether a trust is classified as resident. Illinois treats an irrevocable trust as an Illinois resident trust when its grantor was domiciled in Illinois when the trust became irrevocable. New York treats an irrevocable trust as a New York resident trust when it holds property transferred by a person domiciled in New York at the time of transfer.

New York instructions state that personal income tax is not imposed on a resident trust meeting all three conditions in the state tax law.

Where it shows up for owners of businesses, real estate and private investments

Property transferred during a person's lifetime can be relevant to resident trust status. In New York, the transferor's domicile and whether the trust was irrevocable or revocable at transfer are relevant under the described rule. Wisconsin determines residency asset by asset for trusts first administered in Wisconsin, based on whether the person funding an asset was a Wisconsin resident when that asset was placed in the trust.

The state rules described focus on the trust, the grantor or transferor, and the timing or location of a property transfer. Practitioners describe other state approaches that look to a trustee's or beneficiary's residence.

Points that are easy to confuse

Resident trust status and the income subject to tax are separate questions. New York taxes resident trusts on all income, while nonresident trusts are taxed only on income from New York sources.

A resident trust does not have one uniform definition across states. Illinois uses the grantor's domicile when an irrevocable trust became irrevocable. New York considers the transferor's domicile and the trust's status when property was transferred. Wisconsin uses an asset by asset approach for the specified trusts.

Thresholds and rates change. Check the state's own current figures.

Common questions