Help minimize your state income tax liability with a personal trust administered in the First State.

  • Personal trusts can be important vehicles for helping to minimize a family’s state income tax liability
  • As New York is a high-tax state, there may be opportunities to reduce or eliminate state taxes on some of your income by establishing a new trust in Delaware or moving an existing trust to the First State
  • For example, the potential New York state tax savings on a $1 million long-term capital gain in 2021 could be as high as $68,479; the savings may be even greater for New York City residents

How can this help me as a New York resident? New York is a high tax state, regularly coming in as one of the highest in the country with a top marginal tax rate at 10.9%. New York City applies an additional income tax between 3.078% and 3.876%. Combined, these taxes may approach 15% for a resident of New York City.

Personal trusts can be important tools for helping to minimize a family’s state income tax liability. Holding family wealth inside a trust may limit the ability of New York state and New York City to tax the trust’s income. The “location” of your family’s assets (where your assets are held in trust) may be a significant driver of wealth by potentially reducing or eliminating the drag of state (and city) income taxes. This has been especially true since the effective repeal of the SALT (state and local tax) deduction in 2017, which capped the amount of state taxes that may be deducted against federal gross income.

How do I establish or move a trust to Delaware?

Regardless of your state of residence, you may create a new trust in Delaware and many existing irrevocable trusts may be moved into Delaware for ongoing administration. If you live in New York and created a trust, or you are the beneficiary of a trust, it may be as simple as changing from a trustee who is located in New York to one located in Delaware in order to potentially reduce the trust’s state income tax burden. Creating a new trust requires engaging an attorney who drafts the trust agreement to meet your specific planning goals. You select the beneficiaries of the trust, often your immediate family members, which could include a spouse, and determine when and how they may benefit from the assets held in trust. Finally, you select the assets to place in trust that you want to shield from state income tax. Importantly, while real estate located in New York and other assets that produce New York source income generally cannot escape New York tax, you should be able to shield most other assets, including certain marketable securities, from state taxes.

Please see important disclosures at the end of the article.

Note that a few states, including Delaware, have special trust advantages that may not be available under the laws of your state of residence, including asset protection trusts and directed trusts. This article is for information purposes only. There is no assurance that any investment, financial, or estate planning strategy will be successful.

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