Are there tax advantages to establishing an irrevocable or revocable trust in certain states versus others?

Hey tax gurus! My wife and I are in our mid-50s and looking ahead to estate planning. We currently live in Pennsylvania but we're considering setting up either an irrevocable or revocable trust. I've heard some states like Nevada or Delaware might offer better tax benefits for trusts than others. We have about $1.2 million in assets (including our home, retirement accounts, and some investments) plus a small family business worth maybe $350k. Our financial advisor mentioned trust-friendly states but didn't really get into the specifics about tax implications. Does it actually matter which state we establish the trust in? Are there legitimate tax advantages to creating a trust in certain states even if we don't live there? Any insights about irrevocable vs. revocable trusts from a tax perspective would be super helpful too!

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18 comments

Amelia Martinez

•8M

Yes, the state where you establish your trust can definitely make a difference tax-wise! Some states like Nevada, Delaware, Alaska, and South Dakota are considered more "trust-friendly" because they don't impose state income tax on certain trusts. For a revocable trust, the tax implications generally follow you as the grantor - so your state of residence matters more than where the trust is established. Since you live in Pennsylvania, you'd still be subject to PA income taxes regardless of where the revocable trust is created. For irrevocable trusts, it gets more interesting. If properly structured and administered in a state like Nevada or Delaware, the trust itself might avoid state income taxes on undistributed income and capital gains. This can be significant for larger estates or investment assets that generate substantial income. The key factors to consider are: 1) what type of assets you're placing in the trust, 2) your primary estate planning goals (tax savings vs. asset protection vs. probate avoidance), and 3) the administrative complexities of an out-of-state trust.

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Amelia Martinez

•8M

For an effective out-of-state irrevocable trust, you typically need more than just filing paperwork. You'd need a trustee with meaningful connections to that state, and the trust should be administered there. This often means using a corporate trustee or trust company based in that state. The trust should maintain its records, make its decisions, and conduct its business in the chosen state to establish proper situs (legal location). If these requirements aren't met, your home state might claim taxing authority over the trust regardless of where the documents say it's established.

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Mila Walker

•8M

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Mila Walker

•8M

They don't handle the legal paperwork for creating the trust - that's something you'd still need an estate attorney for. But their analysis gave me a clear picture of which type of trust would benefit my situation tax-wise, which made conversations with my attorney much more productive. Their state-specific information was surprisingly detailed. They included recent tax law changes in Nevada and South Dakota that my local professionals weren't familiar with. Their system references updated tax code and court decisions, and they cite everything so you can verify. I cross-checked some of their recommendations with a specialized estate attorney who confirmed they were spot-on about the nexus requirements for establishing trust situs.

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Chloe Green

•8M

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Caden Nguyen

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Avery Flores

•8M

Don't overlook the non-tax benefits of different states too! I went with a Nevada trust not just for tax reasons but also because they have stronger asset protection laws and longer perpetuities periods (basically how long the trust can last). Delaware has excellent trust laws but still has some state taxes in certain situations. South Dakota combines zero state income tax with excellent asset protection. Alaska allows self-settled asset protection trusts if that's important to you. Really depends what's most important for your situation - tax savings, creditor protection, privacy, or flexibility for future generations.

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Avery Flores

•8M

Yes, there are definitely some potential "gotchas" to be aware of. First, you'll need some legitimate connection to the state - typically this means having a trustee (individual or corporate) who resides in or has a significant presence in that state. Simply naming a friend who lives there isn't usually sufficient. The second big consideration is ongoing administration costs. Out-of-state trusts often require hiring a professional trustee or trust company in that state, which can cost anywhere from $2,500-$8,000 annually depending on the complexity and trust assets. For smaller trusts, these fees might outweigh the tax benefits.

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