Is a trust a Colorado 'resident trust' subject to Colorado income tax when its beneficiary lives in Colorado but the trust is administered by an out-of-state trustee?

Plain-English summary

A family's settlors created three separate trusts, one for each of their three children. The corporate trustee asked Colorado whether this trust is a "resident trust" — which would make its income subject to Colorado income tax. The Department said no: it's a "nonresident trust," because it is administered in Delaware, not Colorado. (The Department issued matching rulings for the sibling trusts; see PLR 22-002 and PLR 22-004.)

Colorado taxes the federal taxable income of every trust, and the test for trust residency is short and specific: a "resident trust" is a trust that is administered in Colorado, and a "nonresident trust" is any other trust (§ 39-22-103(10)). So the question is purely where the trust is administered — not where the beneficiary lives.

Here the facts all pointed to Delaware: the trustee is a Delaware corporation; its agents (including the primary trust officer) handle the day-to-day administration from the trustee's Delaware office; all of the trust's books, records, and accountings are kept there; and any investment decisions on the trust's direct holdings are made by the trustee's agents in Delaware. The trust originally had a California situs, the trustee later moved the situs to Delaware, and the trust has no Colorado-source income and isn't registered in Colorado. Notably, the beneficiary became a Colorado resident — but that does not make the trust a resident trust, because the statute turns on administration, not the beneficiary's residence. Administered in Delaware ⇒ nonresident trust.

What this means for you

Trustees and families with multi-state trusts

For Colorado, a trust's residency comes down to where it is administered — the trustee's location, where the day-to-day work happens, and where the books and records are kept. A trust administered entirely out of state is a nonresident trust even if a beneficiary lives in Colorado. (A nonresident trust can still owe Colorado tax on Colorado-source income; here there was none.)

Estate and trust planners

Situs and administration choices have real Colorado tax consequences. Moving administration and records to an out-of-state trustee can keep a trust outside "resident trust" status. Keep clear documentation of who administers the trust and from where, since that is the controlling fact.

Accountants and tax professionals

The test is § 39-22-103(10): resident trust = administered in Colorado; nonresident trust = everything else. Beneficiary residence is not the test. Watch the separate fiduciary-return triggers in § 39-22-601(3)/(3)(b) (a nonresident trust still files if it has Colorado-source income (§ 39-22-403) or Colorado tax liability). The trust is taxed on federal taxable income under § 39-22-104(1.7)(b) / IRC § 63.

Common questions

Q: Does a Colorado-resident beneficiary make a trust a Colorado resident trust?
A: No. A trust is a "resident trust" only if it is administered in Colorado. The beneficiary's residence doesn't control.

Q: What makes this trust a nonresident trust?
A: It is administered in Delaware — the Delaware corporate trustee handles day-to-day administration and keeps all books and records there.

Q: Does a nonresident trust ever owe Colorado tax?
A: It can, on Colorado-source income (§ 39-22-403) or where it has Colorado tax liability. This trust had no Colorado-source income.

Q: Can other trusts rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else.

Citations and references

Statutes:
- § 39-22-103(10), C.R.S. (definitions of "resident trust" and "nonresident trust")
- § 39-22-104(1.7)(b), C.R.S. (tax on a trust's federal taxable income); 26 U.S.C. § 63 (federal taxable income)
- § 39-22-601(3), (3)(b), C.R.S. (fiduciary return requirement); § 39-22-403, C.R.S. (Colorado-source income)

Sibling rulings on the related family trusts: [[plr-22-002-xxxxxxxx-trust]], [[plr-22-004-xxxxxxxx-trust]]. Related Colorado trust income-tax ruling: [[plr-25-006-electing-settlement-trust-s-taxable-income-and-withholding-of-distribu]].

Source

• Landing page: Colorado Letter Rulings
• Original PDF: PLR-22-003.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR 22-003
July 14, 2022
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
Via Electronic Mail: XXXXXXXX
Re: XXXXXXXX Trust
Dear XXXXXXXX,
You submitted a request for a private letter ruling on behalf of XXXXXXXX (the “Trustee”), as
trustee of the XXXXXXXX (the “Trust”), regarding the residency status of the Trust to the
Colorado Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 24-35-103.5.
This letter is the Department’s private letter ruling. This ruling is binding on the Department to
the extent set forth in 1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer
other than the taxpayer to whom the ruling is made.
Issue
Is the Trust a “resident trust” under section 39-22-103(10), C.R.S.?
Conclusion
No, the Trust’s affairs are administered in Delaware, not in Colorado, and therefore, the Trust is
a “nonresident trust.”
Background1
In XXXXXXXX the Trust was created for the benefit of the child of XXXXXXXX (the "Settlors")
under a trust agreement between Settlors and the initial trustee, XXXXXXXX (the “Initial
Trustee”). At the same time, Settlors, who have three children, created the XXXXXXXX Trust
and the XXXXXXXX Trust.
The beneficiary of the Trust is XXXXXXXX (the “Beneficiary”). The Beneficiary became a
resident of the state of Colorado on or about XXXXXXXX. The original situs of the Trust was the
1 Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a

statement of facts. This section generally recites the statement of facts provided in the request, which is not an
indication that the Department found such facts relevant to its analysis. Some relevant facts may be omitted to
ensure confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the
factual background are generally those of the requester.

PLR 22-003
July 14, 2022
Page 2

state of California. The trust agreement provides that the trustee has the power to move the
situs of the Trust from California to another state and from state to state as the trustee may
deem appropriate from time to time.
At the time of the Trust's creation, Settlors were residents of the state of California. The Trust
Agreement provides that the validity, interpretation, construction, and administration of the Trust
shall be governed by the laws of the state of California. The trust agreement provides that the
trustee shall have the power to change the designation of the Trust’s governing law from the
jurisdiction of California to another state and from state to state as the trustee may deem
appropriate from time to time.
On XXXXXXXX, the Initial Trustee resigned as trustee of the Trust. Settlors appointed Trustee
as successor trustee of the Trust.
Trustee accepted the role as successor trustee of the Trust on XXXXXXXX. Trustee is a
corporation incorporated under the laws of the state of Delaware and has an office located at
XXXXXXXX. On XXXXXXXX, as successor trustee of the Trust, Trustee transferred situs of the
Trust from the state of California to the state of Delaware. Trustee handles the day-to-day
administration of the Trust. All agents of Trustee, including the primary trust officer of the Trust,
work out of Trustee’s Delaware office located at XXXXXXXX. All the Trust's books, records, and
accountings are held at such office. All investments made with respect to the Trust's direct
holdings, if any, would be made by agents of Trustee at such office.
The Trust does not have any Colorado source income, as defined in section 39-22-403, C.R.S.
The Trust is not registered in Colorado, and Trustee does not intend to register the Trust in
Colorado at a future date.
Discussion
Colorado imposes income tax on the federal taxable income of every trust, as determined
pursuant to section 63 of the Internal Revenue Code.2 Every fiduciary is required to make a
return for any trust for which the fiduciary acts.3 The requirement for a fiduciary to make a return
applies to every resident trust and every nonresident trust that has income from Colorado
sources for which a federal income tax return is required to be filed and every resident trust and
every nonresident trust that has incurred any tax liability under any provision of article 22 of title
39, Colorado Revised Statutes.4 The term “resident trust” means a trust that is administered in
Colorado, and the term “nonresident trust” means a trust other than a resident trust.5
The Trust is a nonresident trust. The Trustee is a Delaware corporation. The Trustee’s agents,
including the primary trust officer, handle the day-to-day administration of the Trust from the
Trustee’s Delaware office. All of the Trust's books, records, and accountings are held at the
Trustee’s Delaware office. All investments made with respect to the Trust's direct holdings, if
any, would be made by agents of the Trustee at the Trustee’s Delaware office. The Trust is
administered in Delaware, not in Colorado, and therefore the Trust is a “nonresident trust.”

2 Section 39-22-104(1.7)(b), C.R.S.
3 Section 39-22-601(3), C.R.S.
4 Section 39-22-601(3)(b), C.R.S.
5 Section 39-22-103(10), C.R.S.

PLR 22-003
July 14, 2022
Page 3

Miscellaneous
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts, that all representations are true and complete, and that Company
has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules
promulgated pursuant thereto. The Department reserves the right, among others, to
independently evaluate Company’s facts, representations, and assumptions. The ruling is null
and void if any such fact, representation, or assumption is incorrect and has a material bearing
on the conclusions reached in this ruling. This ruling is binding on the Department and is subject
to modification or revocation, in accordance with 1 CCR 201-1, Rule 24-35-103.5.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.