How did California historically tax accumulated out-of-state trust income when both the trustees and beneficiaries included residents and nonresidents?
Apply this to your situation
This page answers the general question as of 1959. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
California Legal Ruling 238 applied both the historical trustee-residency and beneficiary-residency apportionment rules to accumulated trust income derived entirely outside California.
The ruling avoided counting the same income twice. It first attributed a share based on California-resident trustees, removed that share from the total, and then applied the beneficiary fraction to the remainder.
On the ruling's hypothetical $90,000, the amount taxable to the trust was $60,000.
Facts addressed by the ruling
All accumulated income of the trust came from sources outside California.
The trust had three trustees:
- one California resident; and
- two California nonresidents.
It had two beneficiaries:
- one California resident; and
- one California nonresident.
Historical statutory framework
The ruling described former section 17742 as taxing a trust's entire taxable income to the trust when a fiduciary or beneficiary was a California resident.
When there was more than one fiduciary, former section 17743 required apportionment according to the number of fiduciaries who were California residents.
Former section 17744 required apportionment based on the number of resident beneficiaries.
Because this trust had both resident and nonresident trustees and beneficiaries, the ruling applied both apportionment provisions.
The ruling's $90,000 example
| Step | Historical calculation | California-taxable amount |
|---|---|---|
| Resident-trustee share | 1 of 3 × $90,000 | $30,000 |
| Income remaining after trustee share | $90,000 − $30,000 | $60,000 |
| Resident-beneficiary share of remainder | 1 of 2 × $60,000 | $30,000 |
| Total taxable to the trust | $30,000 + $30,000 | $60,000 |
The remaining $30,000 was not included in the California amount under the example.
Why the rules were applied sequentially
The ruling said each section was applied after deducting from total income the portion attributable to the other section.
Its calculation allocated the resident-trustee share first and then applied the resident-beneficiary percentage only to the unallocated balance. That prevented the first $30,000 from also being included through the beneficiary fraction.
What this means for you
Trustees and fiduciaries
Under the historical ruling, the number and residence of all trustees mattered when a trust had accumulated income from outside California.
Trust beneficiaries
Beneficiary residence also affected the taxable share, but the ruling did not simply add the trustee percentage and beneficiary percentage against the same full income base.
Accountants and tax professionals
Confirm the residence of every fiduciary and beneficiary, the source of trust income, whether income is accumulated or distributed, and the tax-year statutes. Do not carry the 1959 formula into a current return without checking present law.
Common questions
Q: Was all $90,000 taxable because at least one trustee and beneficiary lived in California?
A: No. The historical apportionment rules produced a $60,000 taxable amount on the stated facts.
Q: How much was attributed through trustee residence?
A: $30,000, reflecting one resident trustee out of three.
Q: Was the beneficiary fraction applied to all $90,000?
A: No. It was applied to the $60,000 remaining after the trustee share, producing another $30,000.
Q: Did California-source income drive the result?
A: No. The ruling expressly assumed all accumulated income was from sources outside California.
Q: Does this page state the current California trust formula?
A: No. It explains a 1959 ruling under former provisions; current statutes and guidance must be checked separately.
Citations and references
- Former Cal. Rev. & Tax. Code §§ 17742, 17743, and 17744
Source
- Landing page: California FTB Legal Rulings
- Official HTML: Legal Ruling 238
Original ruling text
Home
Legal Ruling 1959-238
California Franchise Tax Board
Legal Ruling No. 238
October 27, 1959
Trusts: Accumulated Iincome; Taxation When There are Both Resident and Nonresident Trustees and Beneficiaries
When the entire income of a trust is derived from sources outside of California, and at least one of the trustees and at least one of the beneficiaries are California residents, both Sections 17743 and 17744 of the Personal Income Tax Law are applicable. Each section is applied after deducting from total income that portion attributable to the other section.
The entire accumulated income of a trust is derived from sources outside California. There are three trustees of whom one is a resident and two are nonresidents of this state. Of the two beneficiaries, one is a resident and the other a nonresident of California.
Section 17742 of the Personal Income Tax Law provides that the entire taxable income of a trust is taxable to the trust if the fiduciary or beneficiary is a resident of this state. Where, however, there is more than one fiduciary, Section 17743 requires that the taxable income be apportioned according to the number of fiduciaries who are residents of California. Section 17744 requires an apportionment of the trust's taxable income based upon the number of resident beneficiaries.
The income under Sections 17743 and 17744 is computed as follows:
Assume that the total taxable income of the trust is $90,000. The amount of income taxable in California would be $60,000.
Fiduciaries
33-1/3% of $90,000
=
$30,000
Beneficiaries
50% of $60,000
=
$30,000
Taxable Amount
=
$60,000
Last updated: 09/24/2025
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