Most people assume that if they spend fewer than six months in a state, or move their primary residence, they can avoid that state’s income taxes. In reality, 183 days may not be “enough” to prevent state tax exposure — especially when it comes to estate planning and trusts.

If you’ve created a trust as part of your estate plan (or are thinking about it), understanding how and where that trust could be taxed is essential to protecting your wealth.

Trusts Get Taxed Too — And the Rates Are Compressed

Unlike individuals, trusts reach the highest income tax brackets much more quickly. These are known as compressed tax brackets. That means even modest trust income can be taxed at the top rate.

This often catches families by surprise. A trust designed to protect assets and provide for loved ones can unintentionally become a heavy tax burden without proper planning.

Why Your Choice of Trustee Matters More Than You Think

Many people choose a trustee based on trust and family relationships — often a child or close relative. While that makes emotional sense, it can trigger serious tax consequences.

Different states apply different rules when taxing a trust, and some base their authority to tax on something called the Place of Administration — or the residency of the trustee.

For example:

• If your adult child is the trustee and lives in a state that taxes trusts administered there, the trust may be subject to that state’s income tax. (Arizona, for instance, may tax a trust simply because a trustee is an Arizona resident — even if the trust was created elsewhere and owns out-of-state property.)

• If another state also believes it has taxing authority, you could be looking at duplicate state income tax on the same trust income.

This can significantly reduce what ultimately passes to your beneficiaries.

The Risk of Double (or Triple) State Taxation

Without careful planning, it’s possible for a trust to be taxed by:

• The state where it was created

• The state where it is administered

• The state where the trustee or beneficiaries live

This overlap can result in duplicate or even multiple layers of state income tax, which defeats one of the key purposes of many estate plans — preserving wealth.

What You Can Do Now

The good news: these issues are usually preventable with proper legal guidance. An experienced estate planning attorney can help you:

• Evaluate where your trust could be deemed “located” for tax purposes

• Choose the right trustee (individual vs. corporate)

• Add flexibility to your documents to change trustees or administration situs in the future

• Reduce the risk of multiple state tax obligations

Estate planning is no longer just about who gets what — it’s also about where and how your plan is taxed.

Protect Your Estate with Strategic Planning

If your estate plan includes a trust or spans multiple states, now is the time to review it. A few thoughtful adjustments today can protect your family from costly, unnecessary tax exposure tomorrow.