Estates and Trusts

Chapter 9 of Part 10 of Division 2 of the Revenue and Taxation Code deals with estates, trusts, beneficiaries, and decedents under the California Personal Income Tax Law.

Section 17731 states that Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to estates, trusts, beneficiaries, and decedents, applies. Section 692(d)(2) of the Internal Revenue Code, relating to the $10,000 minimum benefit, does not apply.

Section 17731.5 states that Section 641(c)(2)(A) of the Internal Revenue Code is modified. Section 641(c)(2)(B) of the Internal Revenue Code is modified.

Section 17732 states that Section 642(b) of the Internal Revenue Code, relating to deduction for personal exemption, does not apply.

Section 17733 allows an estate a credit of ten dollars $10 against the tax imposed under Section 17041, less any amounts imposed. A disability trust, as defined in Section 642(b)(2)(C) of the Internal Revenue Code, is allowed a credit in an amount equal to the personal exemption credit authorized for a single individual.

Section 17734 states that, in computing “taxable income of a nonresident or part-year resident,” in the case of a nonresident beneficiary, income and deduction derived through an estate or trust is included in that computation only to the extent that the income or deduction is derived by the estate or trust from sources within this state.

Section 17734.6 states that Section 646 of the Internal Revenue Code, relating to tax treatment of electing Alaska Native Settlement Trusts, does not apply.

Section 17736 states that Section 642(c)(2) of the Internal Revenue Code is modified. In the case of a trust, the deduction allowed by Section 642(c) of the Internal Revenue Code is subject to Section 681 of the Internal Revenue Code, relating to limitation on charitable deduction.

Section 17742 provides that the income of an estate or trust is taxable to the estate or trust. The tax applies to the entire taxable income of an estate, if the decedent was a resident, regardless of the residence of the fiduciary or beneficiary, and to the entire taxable income of a trust, if the fiduciary or beneficiary (other than a beneficiary whose interest in such trust is contingent) is a resident, regardless of the residence of the settlor. The residence of a corporate fiduciary of a trust means the place where the corporation transacts the major portion of its administration of the trust.

Section 17743 provides that, where the taxability of income under this chapter depends on the residence of the fiduciary and there are two or more fiduciaries for the trust, the income taxable under Section 17742 is apportioned according to the number of fiduciaries resident in this state pursuant to rules and regulations prescribed by the FTB.

Section 17744 specifies that, where the taxability of income under this chapter depends on the residence of the beneficiary and there are two or more beneficiaries of the trust, the income taxable under Section 17742 is apportioned according to the number and interest of beneficiaries resident in this state pursuant to rules and regulations prescribed by the FTB.

Section 17745 provides that, if for any reason the taxes imposed on income of a trust which is taxable to the trust because the fiduciary or beneficiary is a resident of this state are not paid when due and remain unpaid when that income is distributable to the beneficiary, or in case the income is distributable to the beneficiary before the taxes are due, if the taxes are not paid when due, the income is taxable to the beneficiary when distributable to him except that in the case of a nonresident beneficiary the income is taxable only to the extent it is derived from sources within this state.

If no taxes have been paid on the current or accumulated income of the trust because the resident beneficiary’s interest in the trust was contingent, the income is taxable to the beneficiary when distributed or distributable to him or her. The tax on that income which is taxable to the beneficiary is a tax on the receipt of that income distributed or on the constructive receipt of that distributable income. Income accumulated by a trust continues to be income even though the trust provides that the income (ordinary or capital) becomes a part of the corpus.

Section 17751 states that Section 645 of the Internal Revenue Code, relating to certain revocable trusts treated as part of estate, is modified as specified.

Section 17752 states that Section 663 of the Internal Revenue Code, relating to special rules applicable to Sections 661 and 662, is modified as specified. Section 663(c) of the Internal Revenue Code, relating to separate shares treated as separate estates or trusts, is modified.

Section 17755 states that Section 664(c)(2) of the Internal Revenue Code, relating to excise tax, does not apply and, in lieu, the unrelated business taxable income of every charitable remainder annuity trust or charitable remainder unitrust is subject to tax under Section 17651.

Section 17760 states that Section 684 of the Internal Revenue Code, relating to recognition of gain on certain transfers to certain foreign trusts and estates, does not apply.

Section 17760.5 states that Section 685 of the Internal Revenue Code, relating to treatment of funeral trusts, is modified.

Section 17779 states that Sections 665 to 668, inclusive, of the Internal Revenue Code does not apply to distributions described in Section 17745(b).