A couple of trust questions

I am currently reviewing the prior year trust income tax returns for a new client (IRS Form 1041) and have a couple of questions related to that.

First, the trust had two co-trustees. One of the co-trustees is a CA resident and the other is NOT a CA resident. In order to avoid CA nexus and CA income tax, the co-trustee that is a CA resident has resigned and appointed the other co-trustee as successor. Effectively, we now have a sole trustee who is not a CA resident.

My question is this, the trust docs also appoint an independent trustee. I assume this trustee has not resigned as the now sole trustee is also the beneficiary and without an independent trustee, that may create issues. I have asked whether this independent trustee has resigned or is still serving.

I am not sure about the residency of the independent trustee but can ask. If the independent trustee is a CA resident, do we still have CA exposure?

Second, and this is going to show how green I am...this is a simple trust. All income is required to be distributed to the beneficiary. How is Sch B, line 9 normally calculated? It appears my software does not calculate this line but rather asks for an input. Do most firms keep a spreadsheet that calculates this line item?

Nexus is not just a matter of the residence of the trustees. You have to check CA law to see if CA has nexus for some other reason.

When the trust document speaks to income, it is accounting income as governed by the state of residence principal and income act. Accounting income bears little resemblance to income as defined by the IRS. Typically the preparing firm completes an accounting for the client file.

Nexus is not just a matter of the residence of the trustees. You have to check CA law to see if CA has nexus for some other reason.

I think there are some recent US supreme court cases on nexus as well that apply to all states.

MvT, sorry that I am just know seeing this question

If the independent trustee is a CA resident, do we still have CA exposure?

Yes! CA requires a return if there is a CA trustee, CA non contingent beneficiary, or CA sourced income.