What is the taxation of foreign trusts?
In New York, foreign trusts are subject to taxation on certain income that is derived from sources within the state. This includes income derived from real and tangible personal property, business activities, or investments in New York. If a foreign trust has an income tax filing obligation, annual estimated tax payments must be made by the trust in order to avoid any late payment or underpayment penalties. For individuals, the taxation of foreign trusts depends on the residence status of the beneficiaries of the trust. New York State taxes non-resident beneficiaries of foreign trust income at the same rate as residents of New York. Foreign trusts are also subject to New York’s Estate Tax if the trust is classified as a “resident” trust. A resident trust is one that is maintained, established, or managed by a trustor who is a resident or domiciled in New York during any part of the prior calendar year. All other trusts are classified as nonresident trusts. Resident trusts are subject to the New York Estate Tax at the same rate as resident individuals, while nonresident trusts are subject to a lower rate. Finally, foreign trusts may be subject to the New York income tax upon the sale or exchange of trust property in New York based on the situs of the real or tangible personal property, business activities, or investments in New York. As such, foreign trusts are subject to various taxes in New York and should be aware of all current tax obligations before establishing or maintaining a trust.
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