Keystone State Strengthens Its Irrevocable Trusts With Grantor Trust Rules

In an article for the ABA Spring 2024 eReport, partner Lisa Presser and associate Brian Balduzzi provide a synopsis of Pennsylvania’s new grantor trust and income tax rules. They also provide practical guidance for estate planners and advisors in light of the new law.

Presser and Balduzzi discuss the historical and new treatment for state income taxation of PA irrevocable trusts, sharing that, “Since 1971, Pennsylvania and federal laws have differed in their tax treatment for irrevocable trusts, even when the grantor retained certain powers under the trust instrument.”

Signed in December, the new law states that a Pennsylvania Resident Trust (or a Nonresident Trust with source income from the Commonwealth) is now taxable to the grantor to the extent that such grantor is deemed to be the owner of the trust under sections 671 through 679 of the Code.

The authors also provide advice for planning for future PA irrevocable trusts and next steps once the law goes into effect in January 2025.