Should You Move Your Trust to a Tax-Friendly State? What to Consider

It’s common for individuals in high-tax states to relocate for a more favorable tax climate. But did you know that some trusts can also benefit from a change of residence? If your trust is subject to high state income taxes, you may be able to relocate it—also known as changing its situs—to a state with lower or no income taxes.

How Different Trusts Are Taxed

A trust’s tax treatment depends on its structure:

• Revocable trusts and grantor trusts (where the grantor retains control) aren’t taxed at the trust level. Instead, income flows through to the grantor’s personal tax return.
• Irrevocable, nongrantor trusts, however, are treated as separate tax entities. They pay federal and state income tax on any undistributed income or capital gains—often at higher rates than individual taxpayers. Income distributed to beneficiaries is deductible by the trust and taxable to the recipients.

Because of this, relocating a trust can be particularly advantageous if the trust:

• Is irrevocable and nongrantor
• Accumulates income (rather than distributing it)
• Can be moved to a state with lower or no tax on trust income

Beyond tax savings, relocating a trust can also provide stronger creditor protection, lower administrative costs, or the ability to extend the trust’s duration for multiple generations.

Is Your Trust Eligible to Move?

For irrevocable trusts, changing situs depends on:

• Trust language – Does the document allow for a situs change?
• State laws – The current and destination states may have restrictions.
• Residency factors – States determine a trust’s residency based on:
  • The trust creator’s domicile
  • Where the trust is administered (e.g., trustee’s location, record-keeping)
  • Beneficiaries’ state of residence

Some states apply a formula based on these factors to determine taxation, while others tax all income from in-state assets—such as real estate or businesses—regardless of the trust’s location.

How to Relocate a Trust

Moving a trust typically involves:

• Appointing a new trustee in the destination state
• Transferring trust assets and records
• Amending the trust document (if permitted)
• Creating a new trust in the new state and transferring assets (if needed)
• Obtaining beneficiary or court approval, depending on state laws

For tax purposes, a final return should be filed in the current state, explaining why the trust is no longer taxable there.

Should You Move Your Trust? Let’s Talk.

Relocating a trust can be beneficial, but it requires careful legal and tax planning. If you’re considering a situs change, consult with us to weigh the pros and cons. We can help determine whether moving your trust makes financial sense and guide you through the process.

HoganTaylor Estate Planning Services

HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning  Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.