A California Appellate Court recently held that all of a trust’s California source income is taxable in California, regardless of the state of residence of the trust’s fiduciaries. The Court clarified that it is non-California source income that is dependent on the residence of the fiduciaries for apportioning state income tax. The court also addressed whether the beneficiary’s interest was contingent, and found it was despite a factual finding that the trustees notified the beneficiary of future distributions on which the beneficiary relied in making financial decisions, and the beneficiary told the trustees how to pay the distributions. Ultimately, the trustees had complete discretion to decide if and when to make distributions to the beneficiary.
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