830 CMR: DEPARTMENT OF REVENUE
830 CMR 62:00: INCOME TAX
830 CMR 62.00 is amended by adding the following section:
830 CMR 62.10.1: Income Tax on Trusts and Estates

(1) Jurisdiction over Trusts for Taxation.

(a) Testamentary Trusts. Trusts created under the will of a person who died a resident of Massachusetts are subject to the taxing jurisdiction of Massachusetts with respect to all of their taxable income from whatever source derived. Trusts created under the will of a person who died a resident of any other state or foreign country are subject to the taxing jurisdiction of Massachusetts only to the extent of income derived by the trustee (regardless of his residence) from the carrying on of a profession, trade or business within Massachusetts.

(b) Trusts Inter Vivos. Inter vivos or "living trusts" which are created by a grantor during his lifetime are classified in these Regulations as either "Resident Inter Vivos Trusts" or "Non-Resident Inter Vivos Trusts". The description of these categories and the conditions under which each category is subject to the taxing jurisdiction of Massachusetts are set out in 830 CMR 62.10.1(1)(b)1.

1. Resident Inter Vivos Trusts. To be subject to the taxing jurisdiction of Massachusetts as a "Resident Inter Vivos Trust" at least one trustee must be a resident of Massachusetts and in addition at least one of the following conditions must exist:

a. At the time of the creation of the trust the grantor (or any one of several grantors) was a resident of Massachusetts. The "time of the creation of the trust" will ordinarily be the time when a declaration of trust has been made and property delivered by the grantor to the trustee.

b. During any part of the year for which income is computed the grantor (or any one of several grantors) resided in Massachusetts.

c. The grantor (or any one of several grantors) died a resident of Massachusetts.

2. Non-Resident Trusts. A "Non-Resident Inter Vivos Trust" is any inter vivos trust which is not a "Resident Inter Vivos Trust". Such a trust is subject to the taxing jurisdiction of Massachusetts only to the extent of income derived by the Trustee from the carrying on of a profession, trade or business within Massachusetts. The residence outside of Massachusetts of the grantor, any trustee or any beneficiary, or any or all of such persons, will not remove such a trust from the taxing jurisdiction of Massachusetts.

(2) Method of Taxation of Trusts.

(a) General. Although in Massachusetts the trust and not the beneficiary is the taxpayer, actual tax liability is controlled by the status of the beneficiary. In general, income received by trustees of trusts subject to the taxing jurisdiction of Massachusetts is subject to similar exemptions, deductions and credits, and the same rates of taxation as though received by an individual subject to taxation in Massachusetts. For application of these exemptions, deductions and credits together with special deductions applicable to fiduciaries, see 830 CMR 62.10.1(3). Items received by a trustee which would be either exempt in the hands of an individual or would not constitute income to an individual are not taxable to the trust.

Example: A trust subject to the taxing jurisdiction of Massachusetts receives $1,000 in interest from United States Treasury bonds. Since the interest on United States obligations is specifically exempt from taxation by the Massachusetts personal income tax law, the receipt of such interest by the trust does not enter into the trust's computation of taxable income save in the cases of a claim for the interest deduction allowable under M.G.L. c. 62, § 2 or for the purpose of a beneficiary's claim for the exemptions provided in M.G.L. c. 62, §§ 1(h), 5(f), and 8(a) pursuant to M.G.L. c. 62, §§ 12 and 12A or for the special deductions available to fiduciaries. See 830 CMR 62.10.1(3) and 62.10.1(4).

(b) Character of Beneficiaries.

1. Resident Beneficiaries. To the extent that trust income is payable to, or accumulated for the benefit of resident beneficiaries, all of such income is taxable to the trust at the rate applicable to the particular class of income.

2. Non-Resident Beneficiaries. Where trust income is payable to, or accumulated for the benefit of, non-resident beneficiaries, only the net income derived from professions, trade or business carried on within Massachusetts is taxable to the trust.

3. Unborn Persons. Where income of a trust subject to the taxing jurisdiction of Massachusetts is being accumulated for persons unborn, such income is taxable to the trust.

Example: By the terms of a trust subject to the taxing jurisdiction of Massachusetts income is payable to X, a resident of New Hampshire for life, with remainder to X's children. During a year in which X has no children the trust realizes gains on the sale of securities. Such gains are taxable to the trust in their entirety.

4. Unascertained Persons. Where income of a trust subject to the taxing jurisdiction of Massachusetts is being accumulated for unascertained persons, such income is taxable to the trust. The term "unascertained persons" refers to a class of persons who cannot be identified with certainty until the happening of a specified event. The term also applies to those of a class who fulfill some special qualification.

Example: By the terms of a trust subject to the taxing jurisdiction of Massachusetts income is payable to A, B and C, in equal shares, with remainder in equal shares to each as he attains the age of thirty. The share of any who die under age thirty is to be added to those of the survivors. Here it cannot be ascertained who will take the remainder until all of A, B and C have either attained thirty or died before attaining that age. Accordingly, gains realized by the trust will be deemed to be income accumulated for the benefit of unascertained persons and taxable in full to the trust.

5. Persons with Uncertain Interests. A remainder interest in a trust which is vested and not subject to being divested by the happening of any contingency expressly mentioned in the trust instrument is not classified as an uncertain interest. Any other type of future interest such as a contingent remainder or a vested remainder subject to being cut off upon the happening of a contingency is an uncertain interest. Where income of a trust subject to the taxing jurisdiction of Massachusetts is being accumulated for a person or persons with uncertain interests, such income is taxable to the trust.

Example: By the terms of a trust subject to the taxing jurisdiction of Massachusetts income is payable to X, a resident of New Hampshire, and on X's death the property is to be distributed to those persons who prove to be heirs of X, but if Y (resident of Vermont) shall have children born during the lifetime of X, then upon X's death the property is to be distributed to Y or, if he does not survive X, to Y's estate. Gains realized by the trust during X's lifetime (Y not having had children) are taxed to the trust as income accumulated for unascertained persons with uncertain interest. If, however, Y has children, gains realized thereafter are not income accumulated for persons with uncertain interests.

6. Rules Applicable to Taxable Years Commencing Prior to January 1, 1957. Where during the taxable year which commences before January 1, 1957 income is being accumulated by an inter vivos trust subject to the taxing jurisdiction of Massachusetts for any class of beneficiary covered by 830 CMR 62.10.1(2)(b)3., the amount of such income taxable to the trust is the proportion of such income represented by the ratio of all trustees resident in Massachusetts to total trustees. For taxable years which begin after December 31, 1956, the rule stated in 830 CMR 62.10.1(2)(b)3. will govern.

7. Revocable Trusts. Where income is being accumulated by a trust subject to the taxing jurisdiction of Massachusetts and such trust is revocable by the grantor alone or by the grantor and any person not having a substantial adverse interest in such trust, such income shall, to the extent received while the grantor was a resident of Massachusetts, be deemed to be income accumulated for a Massachusetts resident and, therefore, is fully taxable to the trust. Income of such a trust which is actually paid to a public charity is not deemed to be exempt.

8. Trusts with Reserved Powers. Where income is being accumulated by a trust subject to the taxing jurisdiction of Massachusetts and where the grantor has reserved the right to alter, amend or terminate the trust in any way except for his own benefit, such income shall, to the extent received by the trust while the grantor was a resident of Massachusetts, be deemed to be income accumulated for a Massachusetts resident and, therefore, is fully taxable to the trust. Income of such a trust which is actually paid to a public charity is not deemed to be exempt.

9. Trust as Beneficiary. Where a trust subject to the taxing jurisdiction of Massachusetts has income payable to, or to be accumulated for another trust, the incidence of taxation is to be determined by the character of the beneficiaries of the latter trust.

(3) Deductions and Exemptions.

(a) Business Income Exemption and Family Deductions. A testamentary trust subject to taxation or a "resident inter vivos trust" is not entitled to take the $2,000 exemption against business income except where all of its income is being accumulated for unborn or unascertained persons or persons with uncertain interests. However, a beneficiary of such a trust who is unqualifiedly entitled to business income of the trust may require the trustee to claim his $2,000 exemption and family deductions to the extent that he is entitled to receive such income from the trust and to the extent that such exemption and deductions are not claimed on his individual return, or on the return of any other trust, or of any partnership.

Example 1: A "resident inter vivos trust" operates a retail business in trust under the terms of an instrument which requires the net income to be accumulated for the benefit of such of the children of X (a living person) who attain the age of 35. In this case the trust may claim a $2,000 exemption.

Example 2: A "resident inter vivos trust" operates a retail business in trust for the benefit of X, Y, and Z who are residents of Massachusetts. The trustee may not claim a $2,000 business income exemption for the trust. X, who is entitled to receive $4,000 in business income from the trust, is married to a spouse who has no income at all from any source and has two children who qualify as dependents. X is a member of a partnership, from which he receives $3,000 in business income. X may claim on the partnership return the $2,000 business income exemption, $500 for his spouse, $400 for one child and $100 for the second child, thus wiping out any partnership liability for taxation on X's share. X may require the trustee to claim the balance of the deduction for the second child, $300, on the fiduciary return against X's share of the $4,000 distribution. X is entitled to no further business income exemption or family deductions on any other return. A "Non-Resident Inter Vivos Trust" is entitled to take the $2,000 exemption against business income derived from the conduct of a profession, trade or business within Massachusetts without regard for the status of its beneficiaries. Non-Resident beneficiaries or "Non-Resident Inter Vivos Trusts" who are themselves subject to the Massachusetts income tax may not claim their own $2,000 exemption and family deductions on the trust return.

(b) Business Income Deductions. Any trust carrying on a profession, trade or business within Massachusetts is entitled to all of the deductions against business income contained in 830 CMR 6.00. [830 CMR 6.00: [REPEALED] Such a trust may not, however, take a credit for income tax paid to another state because such credit is restricted to a natural person.

(c) Bond Premium Amortization. Where a trustee purchases taxable bonds at a premium, the premium may be amortized according to any approved method. The premium may be amortized to the first call date, or in the case of declining premium to different call dates the difference in declining premium may be amortized to the intermediate call date.

Example: A taxable bond due in 1980 is purchased at 125 in 1956. It is callable at 115 in 1966 and at 110 in 1971. If the trustee elects to amortize the premium, $10 may be deducted ratably from income in the 10 year period 1956-1966, $5 in the 5 year period 1966-1971 and the remaining $10 in the 9 year period 1971-1980.

Premium on bonds, the income from which is exempt from Massachusetts income taxation, are not subject to amortization deductions but in determining gain or loss the basis of such bonds must be reduced by what would have been the amortization deduction.

The amount of any premium due to a conversion privilege may not be amortized.

(d) Other Fiduciary Deduction. A testamentary trust subject to taxation in Massachusetts or "resident inter vivos trust" is entitled to deduct a portion of its expenses for safe deposit rental, and surety bond premiums which is measured by the ratio of the sum of taxable interest, dividends, annuities and gains from the sale of intangibles to the sum of total income from all sources exclusive of business income.

Example: A trust has $5,000 of taxable interest, $500 of U.S. bond interest, $3,000 in gains from the sale of intangibles, and $10,000 in business income. The Trustee pays $25 for a safe deposit box and $125 for a surety bond. Of the $150 paid out in these expenses 8000/8500 or $141 is deductible.

A testamentary trust subject to taxation in Massachusetts or a "resident inter vivos trust" is entitled to a deduction for compensation actually paid to the trustee based upon such part of the taxable interest and dividends which is paid to or accumulated for a resident of Massachusetts or for unborn or unascertained persons or persons with uncertain interests. The deduction is limited to six per cent (6%) of such income except that with respect to taxable years beginning after December 31, 1956 the rate shall be seven per cent, (7%).

Example: A "resident inter vivos trust" has taxable interest and dividends amounting to $10,000, $5,000 of exempt interest and $5,000 in gains from the sale of intangibles. The income of the trust is payable in equal shares to A, a resident of Massachusetts, and B, a resident of Maine. Provided the compensation is actually paid in the year for which the income is computed, the deduction will be six per cent of $5,000 or $300. For taxable years beginning after December 31, 1956, the rate of compensation for deduction purposes will be seven per cent or $350 on the foregoing example.

(4) Estates.

(a) General. The treatment of estates for Massachusetts income tax purposes is substantially the same as that of trusts set forth in 830 CMR 62.10.1(1). Estates subject to the taxing jurisdiction of Massachusetts and those where the decedent died resident in Massachusetts and those where he died a non-resident but his estate engages in a profession, trade or business within Massachusetts.

(b) Deductions. Executors and administrators are entitled to take for taxable years beginning after December 31, 1956, the same deductions permitted trustees in 830 CMR 62.10.1(3). For other taxable years executors and administrators may not take the deductions for bond premium amortization, surety bond premiums, and safe deposit box rental.

(c) Exemptions. The $2,000 exemption from business income is available only to the executor or administrator of a non-resident estate conducting a profession, trade or business within Massachusetts.

For taxable years beginning after December 31, 1956 beneficiaries of estates may claim on the estate return the same exemption available to beneficiaries of trusts as discussed in 830 CMR 62.10.1(3).

(d) Income of Decedents. Income received by a decedent during his lifetime shall be reported by his executor, administrator or person in charge of his property on Form 1. Income received thereafter shall be reported by his estate.

REGULATORY HISTORY
830 CMR 62.10.1: Income Tax on Trusts and Estates (old number 9.00)
Date of Promulgation: 5/26/58