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Trust tax reporting and capital gains

A non grantor complex Massachusetts trust has a North Carolina trustee. There is no Massachusetts sourced income to the trust such as real estate rentals income, other income is from stock and bond portfolio only. Should the trustee file a Massachusetts or NC trust tax return along with the federal return? The trust language allows the trustee to allocate income and capital gains back to the corpus if desired. Does Massachusetts law allow capital gains to be distributed to the beneficiary?

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Submitted Fri, 03/17/2017 - 10:13

Without reviewing the terms of the trust and seeing the paperwork, there is no way to really answer this question for sure. The taxes are owed by the trust not the trustee, so where the trustee lives doesn't matter. If the trust and beneficiaries are in MA, any taxes will have to be paid in MA (if taxes are due), although the Trustee is still responsible for paying them on behalf of the trust. Whether or not a distribution is allowed will be determined by the terms of the trust, not MA law, but if you mean can the gains bypass the trust entirely and be distributed by the company directly to the beneficiaries the answer is almost certainly no. Trusts are generally responsible for paying taxes on income, and the distributions must be from trust assets, not directly from third parties.

You need to have an attorney review the trust itself to see how to proceed. I would be happy to review it for you and give you an idea of how to proceed. Feel free to contact my at 617-859-8966 or e-mail me at david@grolmanllp.com.

Atty. David Owens



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