A Nevada trust may become subject to California state income tax depending on the residence of the trustee or beneficiaries of the trust. An individual is a California resident if he or she is in that state for other than a temporary or transitory purpose, or if he or she is domiciled in California but is outside the state for a temporary or transitory purpose. Cal. Code Regs., tit. 18, § 17014, subd. (a). California regulations provide that the income of a trust is subject to California income tax “if the fiduciary or beneficiary (other than a beneficiary whose interest in such trust is contingent) is a resident, regardless of the residence of the settlor.” § 17742(a). Therefore, even if the trust creator (settlor) is a Nevada resident, the trust income can be subject to California tax based on the residence of the trustee or beneficiary.
If a Nevada trust has two trustees, one trustee is a Nevada resident and one trustee is a California resident, then one-half of the trust income is subject to California income tax. Where the taxability of trust income depends on the residence of the fiduciary and there are two or more fiduciaries, the taxable income is apportioned according to the number of fiduciaries resident in California. § 17743.
For those who may be considering a California financial institution as a trustee, this could subject the trust to California tax. The California regulations specify that “the residence of a corporate fiduciary of a trust means the place where the corporation transacts the major portion of its administration of the trust.” If the trust company or financial institution will conduct the majority of its trust administration within California then the trust income will be subject to California tax.