On December 29, 2023, Bloomberg Law quoted Kevin Ghassomian on California’s limit on tax breaks for trusts.
According to the article, California Governor Gavin Newsom proposed the change last January as part of the state budget. The proposed change would mitigate a tax strategy that allows California residents to transfer assets into out-of-state incomplete non-grantor trusts and potentially avoid state taxation.
The trusts at issue are those in which the person establishing the trust—the grantor—relinquishes enough control for the trust to be considered a separate taxpayer for state tax purposes but retains enough control to avoid the federal gift tax. The law, effective from January 1, 2023, made incomplete non-grantor trusts that are established in other states subject to California income tax if the grantor is a California resident.
Ghassomian told Bloomberg Law that he believes the new California law has plenty of loopholes. “If the goal of this legislation was to shut down ING planning, they didn’t accomplish it,” he said.
Ghassomian explained that “many of the trusts at issue are set up in states such as Delaware, Nevada, South Dakota, and Wyoming, which don’t have personal income tax. Because the trusts are separate, taxable entities under state and federal law, the tax laws in the state where they’re established apply.”