Eliminate a Trust's State Income TaxEliminate a Trust's State Income Tax

Thomas R. Pulsifer, partner, and Todd A. Flubacher, associate, Morris, Nichols, Arsht & Tunnell L

Many advisors are not aware that their clients might use Delaware trusts for state income tax planning. Delaware law can enable individuals residing in many states, such as New York, New Jersey, Kentucky, Massachusetts, Michigan and Missouri, to use Delaware trusts to minimize or even avoid state income taxes. That's because there is no Delaware income tax on Delaware trusts benefiting individuals who reside outside of Delaware. In fact, the states we've just listed don't tax a Delaware trust's income if the trust is a non-grantor trust; it's possible for such trusts to be funded with incomplete gifts. However, advisors must resist any tempta...