What evidence did California require for a trust permit, and how could the Board collect trust-related tax debts?

Plain-English summary

The Compliance Planning and Evaluation Unit asked about an increase in seller's-permit applications by trusts, vehicle transfers to trusts and collection against trusts. Tax Counsel Ronald L. Dick answered as internal general guidance; the source does not decide an identified taxpayer's permit, clearance or liability.

Staff should refuse a permit or a Certificate of Exemption Use Tax for a vehicle, vessel or aircraft when no evidence showed that a trust already existed. Probate Code section 15201 did not mean that a stated future intention created a present trust.

For an oral personal-property trust, the settlor's declaration alone was insufficient; existence and terms required clear and convincing evidence under section 15207. Suggested permit evidence included bank accounts in the trust's name, a trust lease for business premises, inventory purchases by the trust and written authority for the applicant to act for it. A trustee generally needed no court authorization to operate a business when the trust instrument conferred that power.

Written trust evidence could also support a nontaxable vehicle, vessel or aircraft transfer. A no-consideration transfer might be nontaxable. If consideration existed, section 6281 could apply when substantially all business property transferred and ultimate ownership remained substantially similar; the memorandum referred staff to page 52, section VIII(T) of missing Pamphlet 23.

For collection, a no-consideration transfer to a trust did not trigger successor liability under Regulation 1702(a), but the memorandum said transfers could remain subject to fraudulent-conveyance law. Trust property in a revocable trust could be reached for a trustor's liabilities to the extent of the revocation power, including specified estate claims after death.

When a trust arose at death, Probate Code sections 9201 and 9203 and Revenue and Taxation Code section 6487.1 governed Board notice, claim timing and possible recovery from distributees if an estate distributed too early. The source describes those rules but supplies no estate notice, claim, distribution or assessment records.

A traditional trustee was personally liable for trust-property obligations only if personally at fault through intentional or negligent action or inaction. Counsel believed negligent failure to pay business taxes qualified. Because the trust held the permit and incurred the tax, imposing that liability on the trustee should be referred to the Attorney General for a court action.

The memorandum described a different rule for a Massachussets or business trust: its trustees generally were personally liable for trust debts. Shareholders could also be liable if their retained right to control made the organization a partnership rather than a true trust, even if they never exercised that right.

Distributions to beneficiaries, returns of property to a settlor without a purchase price and revocation transfers could be challenged under fraudulent-conveyance law. The source said no-purchase-price returns did not create successor liability; for the revocable trust in the question, section 18200 allowed resort to trust property for liabilities of the trustor or trust to the extent of the revocation power. If a trust discontinued business without notifying the Board, Regulation 1699(e)'s predecessor-liability provision applied.

The memorandum did not directly resolve every subquestion, including the nominee-lien question, with a separate rule. It also declined to answer questions about two trust-operated franchises without the account files, liability facts and a problem memorandum.

Source posture and citation defects

The live 410.0410 annotation, in the 2026 revision of the Business Taxes Law Guide, retains only trust-existence evidence for permit issuance. It calls the insufficient oral declaration the trustee's; the supporting memorandum says the settlor's. It omits vehicle, vessel and aircraft clearances, trustee business authority, no-consideration and section 6281 transfers, successor and predecessor liability, fraudulent transfers, revocable and estate collection, trustee and business-trust liability, shareholder control, beneficiaries, cited authorities, unresolved subquestions and franchise accounts, and missing records.

The source prints Estate of Schneidel at 140 Cal. App. 2d 710, but that reporter identifies Brownell v. Kilian. It prints the supposed leading case Goldman v. Ottman at 210 Cal. 408, but that reporter identifies Goldwater v. Oltman. People v. Sischo, 31 Cal. App. 2d 345, resolves to the named case. The original source citations remain unchanged below; the two mismatched reporter references do not establish the propositions attributed to the printed names.

CDTFA's Annotated Legal Opinions collection says the letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official five-page 410.0410 PDF has a clean native text layer and no raster images, so no OCR was required. It prints transfer or a vehicle, Massachussets, settler, and other visible defects that remain verbatim below. Both fresh direct PDF downloads and both live-annotation downloads were byte-identical, and duplicate default PDF text extractions matched. The original-text section below remains byte-identical to its committed version and matches the fresh official extraction after removing only the extractor's terminal newline and form feed.

What this means for you

Trustees, settlors, beneficiaries, and tax professionals

Keep the trust operationally separate and documented from formation through closure. Evidence of creation, applicant and trustee authority, consideration, ownership continuity, revocation powers, estate events, asset movements, control and timely agency notice affected registration and collection in this historical memorandum. Obtain current trust, probate, creditor, transfer, permit and tax advice; two central printed case references are defective.

Common questions

Q: Was an oral declaration alone enough to prove a trust?

A: No. Clear and convincing evidence was required.

Q: What business evidence could support a permit?

A: Trust bank accounts, premises leases, inventory purchases, and written applicant authority.

Q: Did no-consideration transfers create successor liability?

A: Not under the successor-liability rule described, but fraudulent-conveyance, revocable-trust, estate and creditor-claim rules could still expose property or recipients.

Q: Could a trustee be personally liable?

A: Counsel said a traditional trustee could be liable when personally at fault, including negligent nonpayment of business tax, and that the Board should use an Attorney General court action. Business-trust trustees generally faced personal liability under the memorandum's separate rule.

Q: Could beneficiaries or shareholders face collection?

A: Beneficiary distributions without consideration could be attacked as fraudulent conveyances. Business-trust shareholder liability depended on whether retained control made the organization a partnership.

Q: Did the memorandum decide the two franchise accounts?

A: No. It requested the files, liability facts and a problem memorandum before answering.

Q: Do all three printed case citations identify the named cases?

A: No. People v. Sischo matches; the reporters printed for Estate of Schneidel and Goldman v. Ottman identify different cases.

Citations and references

• California Probate Code sections 15200, 15201, 15207, 16200(a), 16222(b), 18001, 18200, 18201, 9201, 9203 and 15400 et seq.
• California Revenue and Taxation Code sections 6281, 6487.1, 6811 and 6812; California Sales and Use Tax Regulations 1699(e) and 1702(a)
• California Civil Code section 3439.01 et seq.; 13 Am. Jur. 2d, Business Trusts, sections 9-12
• Pamphlet 23, page 52, section VIII(T), Guidelines for the Application of Sales and Use Tax to the Occasional Sales of Vehicles, Vessels, and Aircraft — cited but not reproduced
• Estate of Schneidel, printed at 140 Cal. App. 2d 710 — reporter identifies unrelated Brownell v. Kilian
• People v. Sischo, 31 Cal. App. 2d 345 — reporter verified to the named case
• Goldman v. Ottman, printed at 210 Cal. 408 — reporter identifies Goldwater v. Oltman
• April 27 request; trust instruments and existence evidence; vehicle, vessel and aircraft records; consideration and ownership records; permits and clearances; liabilities; estate notices, claims and distributions; Attorney General actions; beneficiary and shareholder records; discontinuance notice; franchise files; tax records; and outcomes — described or implicated but not included

Verbatim support

From the official August 8, 1989 Tax Counsel memorandum:

We believe that the staff should refuse to issue a permit or refuse to issue a Certificate of Exemption Use Tax where there is no evidence that a trust is in existence.

The existence and terms of an oral trust of personal property may be established only by clear and convincing evidence.

We believe that, if a trustee operates a business and negligently fails to pay taxes incurred by the business, the trustee is personally liable for the taxes.

However, since the “person” holding the seller’s permit and incurring the tax liability is the trust, any liability the Board seeks to impose upon the trustee should be by referral to the Attorney General’s office to file a court action.

We are unable to provide you with specific answers to your questions without further facts regarding the tax liability owed by the trusts.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0410
• Original supporting opinion: 410.0410 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
410.0410
To:

Mr. T. A. Krummell
Compliance Planning & Evaluation Unit

From:

Ronald L. Dick
Tax Counsel

Subject:

Trusts

Date:

August 8, 1989

This is in reply to your April 27, 1989 memorandum regarding the issues raised by a recent increase in application for seller’s permits by trusts and transfers of vehicles to trusts. Your questions and our responses follow. “I.

REGISTRATION OF TRUSTS
A.
Probate Code Section 15200, ‘Methods of Creating Trusts,’ permits creation of trusts by various methods. Section 15200(e) allows creation by ‘...An enforceable promise to create a trust...’ Field Offices have generally requested written documentation of a trust’s existence prior to issuance of a permit or allowing an ex-tax transfers of vehicles into a trust. This section may conflict with Section 15201, ‘Intention to create Trust,’ by stating an enforceable promise to create a trust creates a trust, whereas Section 15201 states a ‘...settlor properly manifests an intention to create a trust...’ creates a trust. Would there be a legal basis for us to: 1.

Refuse issuance of a permit to a taxpayer who states he/she
intends to form a trust and provides no documentation so that effect?

2.

Refuse issuance of a use tax clearance on a vehicle, vessel or aircraft if a taxpayer states he/she intends to form a trust and provides no documentation to that effect?”

We believe that the staff should refuse to issue a permit or refuse to issue a Certificate of Exemption Use Tax where there is no evidence that a trust is in existence. We do not read Probate Code Section 15201 to mean that a person presently creates a trust by manifesting an intention to create a trust in the future. Section 15201 provides, “A trust is created only if the settlor properly manifests an intention to create a trust.” The issue is generally not whether the

Mr. T. A. Krummell

-2-

August 8, 1989
410.0410

settlor intends to create a trust in the future. Rather, the issue arises when there is a question after the fact as to whether the person who transferred property intended to create a trust or to make some other disposition of his or her property, such as a gift. “B.

Probate Code Section 15207, ‘Oral Trust of Personal Property,’ permits formation of a trust by oral declaration. In the event of an oral trust being formed as allowed under Section 15207: 1. What evidence must be presented for the Board to issue a permit? 2. Must court approval be obtained by a trust to operate a business? 3. May the Board require written evidence to support issuance of vehicle, vessel of aircraft use tax exemption?”

The oral declaration of the settlor, standing alone, is not sufficient evidence of the creation of a trust of personal property. The existence and terms of an oral trust of personal property may be established only by clear and convincing evidence. (Prob. Code § 15207, subds. (a) and (b).) There are various types of evidence which the staff may request to prove the existence of a trust. We believe that when the trust applies for a seller’s permit, the staff should request evidence of bank accounts in the name of the trust, a lease of business premises in the name of the trust, purchase of inventory by the trust, written authorization of the person applying for the permit to so act on behalf of the trust, or any similar evidence. Generally, a trustee need not obtain court authorization to operate a business where the power is conferred by the trust instrument. (Probate Code § 16200, subd. (a) and 16222, subd. (b).) The staff may require written evidence of the existence of a trust to support a claim that the transfer or a vehicle, vessel or aircraft is nontaxable; however, in general, the transfer may be nontaxable because made for no consideration. If there is a consideration, the transaction may qualify for exemption from tax under Revenue and Taxation Code section 6281 if it is a transfer of all or substantially all of the property held in the course of business activities of the seller when the real or ultimate ownership of the property is substantially similar to that which existed prior to the transfer. For a discussion of this type of transaction, see page 52 of Pamphlet 23, “Guidelines for the Application of Sales and Use Tax to the Occasional Sales of Vehicles, Vessels, and Aircraft,” section VIII, subsection T. “II.

COLLECTION AGAINST TRUSTS
A.
When a trust assumes operation of an ongoing business, presuming all assets are transferred into the trust: 1. Do provisions of Sections 6811 and 6812, Sales and Use Tax Law, relating to successor’s liability, apply?

Mr. T. A. Krummell

-3-

2.
3.
4.

5.
6.

August 8, 1989
410.0410

If a debt is incurred by the predecessor or transferor, may
the Board proceed against the trust (successor)?
If the Board may proceed against the trust as successor, are any legal limitations to be expected? If the Board chooses to proceed against the trust as successor, and the trustee chooses to remove assets from the trust, may a nominee lien be filed? To what extent is a trustee liable for debts incurred by the trust? Is there any personal liability of a trustee for debts incurred by the trust?”

Preliminary we note that, if the trustor transfers his property into a trust, we believe the transfers would be subject to the fraudulent conveyance statutes. (See Civil Code § 3439.01 et seq.) A person cannot create a trust that will protect his or her property from the claims of his or her creditors. (Estate of Schneidel, 140 Cal. App. 2d. 710.) Further, as to liabilities incurred by the trustor after the transfer of property to the trust, where the trustor has made a transfer for no consideration to a revocable trust during the trustor’s lifetime, the Board can consider the trust property as property of the trustor to the extent of the power of revocation during the lifetime of the trustor. (Probate Code § 18201.) Upon the death of a trustor who had retained the power to revoke the trust in whole or in part, the property that was subject to the power of revocation at the time of the trustor’s death is subject to the claims of creditors of the decedent trustor’s estate to the extent that the estate is inadequate to satisfy those claims and expenses. (Probate Code § 18201.) Absent any consideration given to the trustor for property placed in the trust, the successor liability statute would not apply. (See Sales and Use Tax Reg. 1702, subd. (a).) We turn now to the situation where the transfer to the trust occurs upon the death of the trustor. Under Probate Code section 9201, a claim by the Board of Equalization against the estate of a decedent is generally barred only after the administrator of the estate files a written notice or request to the Board and expiration of the period of time provided in the applicable tax section. See, for example, Revenue and Taxation Code section 6487.1 which provide that a notice of deficiency determination shall be mailed within four months after written request. If the estate distributes property before the expiration of time allowed the Board to file a claim, the Board has a claim against the distributees to the extent of the Board’s claim, or each distributee’s share of the distributed property, whichever is less. (Probate Code § 9203.) Regarding the liability of a trustee for debts incurred by the trust, generally, a trustee is personally liable for obligations arising from ownership of trust property only if the trustee is personally at fault. A trustee is “personally at fault” when the trustee, either intentionally or negligently, acts, or fails to act. (Probate Code § 18001; Law Revision Commission Comment.) We believe that, if a trustee operates a business and negligently fails to pay taxes incurred by the business, the trustee is personally liable for the taxes. However, since the “person” holding the

Mr. T. A. Krummell

-4-

August 8, 1989
410.0410

seller’s permit and incurring the tax liability is the trust, any liability the Board seeks to impose upon the trustee should be by referral to the Attorney General’s office to file a court action. There is a different rule where the trust is not a traditional trust but, rather, is a “Massachussets” or business trust. A business trust is an unincorporated association created by voluntary act, based on contract, of owners of property or property interests for purposes of carrying on some type of business or commercial activity for profit. Title to the capital of the organization is usually vested in trustees who manage the affairs of the trust. Beneficial interest in the trust estate is evidenced by transferable certificates, similar to corporate shares. The object of a Massachusetts or business trust is not to hold and conserve particular property, with incidental powers, as in the traditional trust, but to provide a medium for the conduct of the business and the sharing of its gains. Generally, the trustees of a business trust are personally liable for debts of the trust. (People v. Sischo, 31 Cal.App.2d. 345.) The Sischo case concerned a business trust which held a permit issued to the trust estate as a retailer. The trust instrument specified that the trustees were not personally liable for obligations of the trust. However, the court held, citing the leading case of Goldman v. Ottman, 210 Cal. 408, that the trustees were personally liable, and that only an agreement to the contrary by the creditor at the outset could avoid the general rule of liability. We understand that the position of the compliance staff is that the Board holds trustees personally liable and will not consent to any other arrangement. We believe there may be situations whereby the shareholders of the trust may be liable for the trust debts. Liability of shareholders will depend on whether or not a true trust or a partnership relation exists. The criterion most frequently applied is the right to control. If, under the trust instrument, the trustees are vested with title to the property and with the exclusive right to manage its business and conduct its affairs free from the control of the shareholders, the organization is treated as a trust. If the shareholders have the right, even though unexercised, to control the trustees in these particulars, the organization is treated as a partnership and the shareholders as partners. (13 Am. Jur. 2d., Business Trusts, §§ 9-12; Goldman v. Ottman, supra.) “B.

If a trust which owes a debt to the Board distributes its assets, may the Board pursue any legal remedies against beneficiaries of the trusts?”

Since the transfer of trust assets to the beneficiaries would be without consideration, the transfer would be subject to the fraudulent conveyance statutes. “C.

If a trust which owes a debt to the Board transfers assets back to the settler: 1. Do provisions of Sections 6811 and 6812, Sales and Use Tax Law, relating to successor’s liability, apply? 2. May the Board proceed against the trust (successor)?

Mr. T. A. Krummell

-5-

3.

August 8, 1989
410.0410

If the Board may proceed against the settlor as successor,
are any legal limitations to be expected?”

Again, absent a purchase price, successor’s liability would not apply. Since, under the facts you present here, the trust is revocable, the Board can look to the trust property to the extent of the power of revocation for payment of liability of either the trustor or the trust. (Probate Code § 18200.) “III.

REVOCABLE TRUSTS
A.
Probate Code Chapter 3, Section 15400 et. seq. creates a
presumption of revocability.
1.
If a trust owing a debt to the Board, and which is registered under Business Taxes statutes, is revoked by the trustee, what avenues of collection are open to the Board? 2. May the Board proceed against the trust (successor)? 3. If the Board may proceed against the settlor as successor, are any legal limitations to be expected?”

Since the revocation of a trust would result in a transfer of the trust property for no consideration, the transfer would be subject to the fraudulent conveyance statutes. If the trust discontinues business and does not notify the Board, then the predecessor liability provision of Sales and Use Tax Regulation 1699, subdivision (e), applies. You also asked questions regarding two McDonald franchises which are operated by trusts. We are unable to provide you with specific answers to your questions without further facts regarding the tax liability owed by the trusts. Please send the files and a memorandum outlining the specific problems you are experiencing with the accounts, and we will be able to provide you with an answer. Also, if you need further information regarding your questions, feel free to write again.

RLD:sr
Bc:

Mr. Gary J. Jugum
Mr. Donald J. Hennessy
Mr E.L. Sorensen, Jr.
Mr. Gordon P. Adelman