The United States legal system can be quite complicated at times, especially when it comes to jurisdiction. First, there is Federal law and then each state also has their own laws. This can create some ambiguity when it comes to taxation rules, which becomes especially relevant when planning an estate in Maryland or in any other state. If the beneficiary to a trust decides to move to another state, this could have significant taxation ramifications, which one should keep in mind.
The income from the trust could be subject to the tax laws of the state to which the beneficiary moved to. This could be a problem if one had not considered this possibility when trust planning for the future. Many experts advise that people looking to plan an estate using a trust should ask the beneficiary or the trustee how often they have moved within the last year.
It is essential for the trustee to be involved in the planning of the trust as well as implementing the trust. He or she should be sure to perform his or her due diligence upon establishment of the trust. This means taking into consideration where the trust may be subject to taxation. Also, he or she should examine the law and attempt to find out if unnecessary taxation can be avoided.
However, in order to make this determination, one will have to be familiar with how jurisdictional rules apply in Maryland or in any other state involved. Examination of the relevant and applicable statutes will require an understanding of the specific legal language, which may not be straightforward. However, this will ultimately help in planning an estate and avoiding taxation of income from a trust.
Source: Bloomberg BNA, State Jurisdictional Rules on Taxing Trusts Present Planning Opportunities, Traps for Unwary, BBNA Special Report Finds, , Aug. 23, 2013
