Moving a trust over state lines can offer tax savings and other benefits

People who live in states with high income taxes sometimes relocate to a state with a more favorable tax climate. A similar strategy can be available for trusts. If a trust is subject to high state income taxes, you may be able to change its residence — or “situs” — to a state with low or no income taxes.

What can a “trust-friendly” state offer?

In addition to offering low (or no) tax on trust income, some states:

Authorize domestic asset protection trusts, which provide added protection against creditors’ claims,
Permit silent trusts, under which beneficiaries need not be notified of their interests,
Allow perpetual trusts, enabling grantors to establish “dynasty” trusts that benefit many generations to come,
Have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters, or
Offer greater flexibility to draft trust provisions that delineate the trustee’s powers and duties.

If another state’s laws would be more favorable than your own state’s, you might benefit from moving a trust to that state — or setting up a new trust there.

Take states’ laws into consideration

It’s important to review both states’ laws for determining a trust’s “residence” for tax and other purposes. Typically, states make this determination based on factors such as:

The grantor’s home state,
The location of the trust’s assets,
The state where the trust is administered (that is, where the trustees reside or the trust’s records are kept), and
The states where the trust’s beneficiaries reside.

Keep in mind that some states tax income derived from in-state sources even if earned by an out-of-state trust.

Making the right move

To enjoy the advantages of a trust-friendly state, establish the trust in that state and take steps to ensure that your choice of residence is respected (such as naming a trustee in the state and keeping the trust’s assets and records there). It may also be possible to move an existing trust from one state to another.

We can assist you in determining if setting up trusts in another state would help you achieve your estate planning goals.

Topel Forman Celebrates Continued Recognition for Firm Excellence and Workplace Culture

Apr 21, 2026

Topel Forman is pleased to announce that the firm has once again been recognized by Accounting Today as Regional Leader and a Firm to Watch. Topel Forman was also named a 2026 USA Today Top Workplace winner, a national honor based entirely on employee feedback.

Understanding the Illinois Gives Tax Credit Act

Mar 25, 2026

Illinois Gives offers an opportunity to support long-term charitable endowments benefiting Illinois communities while receiving a state income tax credit. Illinois Gives contributions should be evaluated in the context of broader federal charitable planning, given that the Illinois credit both reduces Illinois income tax liability and, under federal quid pro quo rules, reduces the amount of the federal charitable deduction.

Gifting Strategies: Why The Annual Gift Tax Exclusion Matters

Mar 16, 2026

When we talk about gifting as part of a tax strategy, many people assume it’s something only the ultra-wealthy need to worry about. But gifting is actually one of the simplest and most powerful financial planning tools available – and a thoughtful gifting strategy can make a meaningful difference for your family, both now and in the long run.

Today’s Estate Planning Topic – March 18, 2019