Senator Valladares’s bill addresses California’s treatment of incomplete gift nongrantor trusts by expressly excluding those that qualify as charitable remainder trusts from that category, with a stated purpose of aligning the state’s tax rules in this area with the authorities governing charitable remainder arrangements. Under current law, the income of estates or trusts is taxed in a manner similar to individuals, and beginning in 2023 the income of an incomplete gift nongrantor trust is included in the grantor’s gross income to the extent it would be included if the trust were treated as a grantor trust; the bill’s findings contend that the amendments are declaratory of existing law rather than a change in policy.
To qualify for the exclusion, the trust must be a nongrantor trust rather than a grantor trust, and the transfer to the trust must be treated as an incomplete gift. The fiduciary would file the California fiduciary income tax return and irrevocably elect to be taxed as a resident nongrantor trust, and the trust must be a nongrantor trust for tax purposes. In addition, ninety percent or more of the distributable net income of the trust must be distributed, or treated as distributed, to a charitable organization, as defined for these purposes. Finally, the trust would not be considered an incomplete gift nongrantor trust if it qualifies as a charitable remainder trust under the applicable federal provisions.
Implementation provisions authorize regulatory and guidance authority for the Franchise Tax Board to carry out the bill’s purposes, and the bill defines the key terms related to incomplete gift nongrantor trusts and resident nongrantor trusts. The overall framework preserves the existing federal-versus-state treatment of grantor versus nongrantor arrangements while creating a specific carve-out for charitable remainder trusts, with the authors describing the change as declaratory of existing law rather than a substantive shift in policy or revenue impact.
![]() Suzette ValladaresR Senator | Bill Author | Not Contacted |
Email the authors or create an email template to send to all relevant legislators.
Senator Valladares’s bill addresses California’s treatment of incomplete gift nongrantor trusts by expressly excluding those that qualify as charitable remainder trusts from that category, with a stated purpose of aligning the state’s tax rules in this area with the authorities governing charitable remainder arrangements. Under current law, the income of estates or trusts is taxed in a manner similar to individuals, and beginning in 2023 the income of an incomplete gift nongrantor trust is included in the grantor’s gross income to the extent it would be included if the trust were treated as a grantor trust; the bill’s findings contend that the amendments are declaratory of existing law rather than a change in policy.
To qualify for the exclusion, the trust must be a nongrantor trust rather than a grantor trust, and the transfer to the trust must be treated as an incomplete gift. The fiduciary would file the California fiduciary income tax return and irrevocably elect to be taxed as a resident nongrantor trust, and the trust must be a nongrantor trust for tax purposes. In addition, ninety percent or more of the distributable net income of the trust must be distributed, or treated as distributed, to a charitable organization, as defined for these purposes. Finally, the trust would not be considered an incomplete gift nongrantor trust if it qualifies as a charitable remainder trust under the applicable federal provisions.
Implementation provisions authorize regulatory and guidance authority for the Franchise Tax Board to carry out the bill’s purposes, and the bill defines the key terms related to incomplete gift nongrantor trusts and resident nongrantor trusts. The overall framework preserves the existing federal-versus-state treatment of grantor versus nongrantor arrangements while creating a specific carve-out for charitable remainder trusts, with the authors describing the change as declaratory of existing law rather than a substantive shift in policy or revenue impact.
Ayes | Noes | NVR | Total | Result |
---|---|---|---|---|
40 | 0 | 0 | 40 | PASS |
![]() Suzette ValladaresR Senator | Bill Author | Not Contacted |