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Trust taxation varies heavily by state

After a lifetime of hard work and tough choices, you would want to be able to choose who benefits from your fortunes. A surviving spouse or children may be at the top of your mind, while you may also want to contribute to charitable organizations or important cultural institutions.

One thing all these goals have in common is the strategic estate planning that often goes into fulfilling them. Federal law and the tax code of the state of Connecticut affect most of the higher value estates, which can make trusts an attractive way to transfer assets without estate taxes taking hold.

One issue that affects far more estate planners is the ability of states to tax the income of trusts, as several people set up trusts just to avoid the complications of a bequest. The Supreme Court recently expressed the opinion that states cannot tax the income of an estate simply because the beneficiary lives in that state.

There is no uniform rule for how trust income is taxed, which has occasionally resulted in competition between states for the business of setting up trusts. Connecticut's neighbor Massachusetts, for example, will tax a trust only if both the creator of the trust and beneficiary live there. Connecticut does not consider the residence of either party.

Anyone looking to solve the complicated issues surrounding estate planning should consider the potential advantages of legal representation. An attorney can help draw on the specifics of Connecticut law regarding estates and trusts, as well as represent a client in probate court proceedings to resolve disputes.

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