Is a testamentary trust a New York resident trust under Tax Law section 605(b)(3)(C), and subject to New York personal income tax under Article 22, when all of its trustees live in New York but the person who created it in her will died domiciled in Florida?

Plain-English summary

Genevieve G. Harper died on March 29, 1995 domiciled and resident in Arcadia, Florida, and her will (probated in Florida) created a testamentary trust for her family. All three trustees appointed by the Florida probate court - Ralph R. Harper, James W. Harper, and John R. Harper - are New York residents, the trust's records are kept in Monroe County, New York, and the trust's principal place of business will be in New York. The trust asked the Department whether it is a New York "resident trust" under Tax Law § 605(b)(3)(C), and therefore subject to New York personal income tax under Article 22.

The Department said no. Tax Law § 605(b)(3) defines a resident trust to include a trust consisting of property transferred by the will of a decedent who was domiciled in New York at death. Because Genevieve Harper was domiciled in Florida - not New York - when she died, the trust does not meet that test, no matter where its trustees live or where the trust is administered. The trust is instead a "nonresident trust" under Tax Law § 605(b)(4).

A nonresident trust is taxed under Tax Law § 601(e) only on its New York-source income, determined under the sourcing rules of § 633, which borrow the nonresident-individual sourcing rules of § 631. Here, the trust is to be funded primarily with life insurance proceeds and securities - predominantly Florida municipal bonds and bond funds - with no real or tangible property. None of that produces New York-source income. As a result, the trust's New York source fraction is zero, and the trust owes no New York Article 22 tax at all - not because of any special exemption, but because it simply has no New York-source income to tax.

What this means for you

Trustees and beneficiaries of trusts created by a nondomiciliary's will

Where the trustees live, and where the trust keeps its records or has its principal place of business, does not make a testamentary trust a New York resident trust under the § 605(b)(3)(C) test. What matters is whether the decedent whose will created the trust was domiciled in New York at death. If the decedent was domiciled elsewhere - Florida in this case - the trust is a nonresident trust even with an all-New York trustee panel and New York-based administration. That status then determines whether the trust owes New York tax at all: a nonresident trust pays New York tax only on New York-source income, so a trust holding non-New York assets (like out-of-state municipal bonds or life insurance proceeds) can end up owing no New York tax whatsoever.

Accountants and tax professionals advising trustees on trust situs and filings

When classifying a trust as resident or nonresident under Tax Law § 605(b)(3), confirm which of the statute's alternative tests actually applies to the trust in question, and don't assume that trustee residence or the location of administration controls. The § 605(b)(3)(B)/(C) test keyed to a decedent's will turns on the decedent's domicile at death, full stop - it is a different inquiry from the grantor-trust tests in § 605(b)(3)(C)(i)-(ii), which do turn on the domicile of the person whose property funds the trust at the time of transfer. Once you've correctly classified the trust as nonresident, remember that its New York tax exposure is then measured by the § 633/§ 631 source rules: gather documentation on the trust's assets and income sources so you can show, as Petitioner did here, that none of it is New York-source.

Common questions

Q: Does having all New York-resident trustees make a testamentary trust a New York resident trust?
A: Not under this test. Tax Law § 605(b)(3)(B)-(C) looks to the domicile of the decedent whose will created the trust, not to where the trustees live or where the trust is administered. The Harper Family Trust had three New York-resident trustees, New York-based records, and its principal place of business in New York, yet it was still a nonresident trust because Genevieve Harper died domiciled in Florida.

Q: Why did the trust end up owing zero New York tax, rather than some reduced amount?
A: Because a nonresident trust is taxed under Tax Law § 601(e) only on income sourced to New York under §§ 633 and 631, and the trust's assets - life insurance proceeds and predominantly Florida municipal bonds and bond funds - generated no New York-source income at all. With no New York-source income, the numerator of the New York source fraction is zero, so the resulting tax is zero.

Q: Would the answer change if the trust held New York-source income-producing property instead of Florida municipal bonds?
A: Yes. The trust's nonresident classification would not change, but its tax liability would: a nonresident trust with New York-source income (for example, income from New York real property or a New York business) is taxed on that income under § 601(e), even though it remains a nonresident trust for classification purposes.

Q: Is this the same domicile test that applies to lifetime (inter vivos) trusts?
A: No. Tax Law § 605(b)(3) also has separate tests for trusts funded during a grantor's lifetime, keyed to the grantor's domicile at the time property was transferred to the trust (or at the time the trust became irrevocable) rather than the domicile of a testator at death. This opinion addresses only the will-funded testamentary trust test in § 605(b)(3)(B)-(C).

Q: Does the trust need to file a New York fiduciary income tax return even though it owes no tax?
A: This opinion addresses only whether the trust is a resident or nonresident trust and whether it has New York-source income producing a tax liability; it does not address filing obligations, which can apply independently of whether any tax is ultimately due.

Citations and references

• Tax Law § 605(b)(3) - defines a "resident estate or trust," including a trust consisting of property transferred by the will of a decedent domiciled in New York at death
• Tax Law § 605(b)(3)(C) - the specific resident-trust subsection Petitioner asked about, addressing trusts funded by a New York domiciliary's property transfer or a trust becoming irrevocable while the grantor is New York domiciled
• Tax Law § 605(b)(4) - defines a "nonresident trust" as any trust that is not a resident or part-year resident trust
• Tax Law § 601(e) - imposes tax on a nonresident trust's taxable income derived from New York sources, computed via the New York source fraction
• Tax Law § 633 - defines the New York source income of a nonresident trust
• Tax Law § 631 - source rules for nonresident individuals, applied to nonresident trusts under § 633

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a96_2i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-96 (2) I
Income Tax
March 28, 1996

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I951113C

On November 13, 1995, a Petition for Advisory Opinion was received from
Genevieve G. Harper Family Trust, Ralph R. Harper, Trustee, 3 Stefenage Court,
Pittsford, New York 14534.
The issue raised by Petitioner, Genevieve G. Harper Family Trust, is
whether it is a resident trust within the meaning of section 605(b)(3)(C) of the
Tax Law and subject to the New York State personal income tax under Article 22
of the Tax Law.
Petitioner presents the following facts. Ralph R. Harper is a co-trustee
of Petitioner, and is a resident of New York State. The remaining trustees, James
W. Harper and John R. Harper, are both New York State residents.
Petitioner is a testamentary trust created under the last will and
testament of Genevieve G. Harper, dated September 16, 1983. Genevieve G. Harper
died a domiciliary and resident of Arcadia, Florida on March 29, 1995. The will
of Genevieve G. Harper was admitted to probate in the Circuit Court of DeSoto
County Florida by Order dated May 24, 1995. Ralph R. Harper, James W. Harper and
John R. Harper were appointed personal representatives of the estate. Letters
of administration were issued by the Circuit Court for DeSoto County Florida on
May 24, 1995. The Circuit Court for DeSoto County Florida also appointed Ralph
R. Harper, James W. Harper and John R. Harper trustees of the trust by Order
dated August 18, 1995.
Petitioner is to be funded primarily with cash from an insurance policy on
the life of the decedent, together with various securities owned by the decedent.
The securities are predominantly Florida municipal bonds or Florida municipal
bond funds. No real or tangible property will be used to fund the trust. All
trust records will be maintained by the trustees in the County of Monroe in the
state of New York. Petitioner's principal place of business will be in New York
State.
Section 605(b)(3) of the Tax Law defines a "resident estate or trust" as
follows:
(A) the estate of a decedent who at his [her] death was
domiciled in this state,
(B) a trust, or a portion of a trust, consisting of property
transferred by will of a decedent who at his [her] death was
domiciled in this state, or
(c) a trust, or portion of a trust, consisting of the property
of:

-2­

TSB-A-96 (2) I
Income Tax
March 28, 1996

(i) a person domiciled in this state at the time such property
was transferred to the trust, if such trust or portion of a trust
was then irrevocable, or if it was then revocable and has not
subsequently become irrevocable; or
(ii) a person domiciled in this state at the time such trust,
or portion of a trust, became irrevocable, if it was revocable when
such property was transferred to the trust but has subsequently
become irrevocable.
For the purposes of the foregoing, a trust or portion of a trust is
revocable if it is subject to a power, exercisable immediately or at
any future time, to revest title in the person whose property
constitutes such trust or portion of a trust, and a trust or portion
of a trust becomes irrevocable when the possibility that such power
may be exercised has been terminated.
Section 605(b)(4) of the Tax Law defines a "nonresident trust" as a trust
which is not a resident or part-year resident.
Petitioner was created under the Will of Genevieve G. Harper, who died a
domiciliary and resident of Arcadia, Florida on March 29, 1995. Petitioner is to
be funded primarily with cash from an insurance policy on the life of the
decedent, together with various securities owned by the decedent which are
predominantly Florida municipal bonds or Florida municipal bond funds. Since
Petitioner consists of property transferred by the will of a nondomiciliary of
New York State, Petitioner is not a resident trust pursuant to section 605(b)(3)
of the Tax Law. Petitioner is a nonresident trust pursuant to section 605(b)(4)
of the Tax Law.
Section 601(e) of the Tax Law imposes a tax for each taxable year on the
taxable income which is derived from New York sources of every nonresident trust
which is equal to the tax base multiplied by the New York source fraction. The
New York source fraction is a fraction, the numerator of which is the taxpayer's
New York source income and the denominator of which is the taxpayer's New York
adjusted gross income.
Section 633 of the Tax Law provides that the New York source income of a
nonresident trust is the sum of (1) the net amount of items of income, gain, loss
and deduction entering into Federal adjusted gross income, as determined under
section 601(e)(4) of the Tax Law, derived or connected with New York sources, and
(2) the portion of the modifications described in section 618 of the Tax Law
which relate to income derived from New York sources other than that portion of
the modification provided in section 618(3) which relates to section 615 of the
Tax Law. The determination of source is made in accordance with the applicable
rules of section 631 of the Tax Law as in the case of a nonresident individual.

-3­

TSB-A-96 (2) I
Income Tax
March 28, 1996

Pursuant to the rules of section 631 of the Tax Law, Petitioner does not
have any New York source income. Therefore, Petitioner is not subject to tax
under Article 22 of the Tax Law.

DATED:

March 28, 1996

s/DORIS S. BAUMAN
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.