If I pass my nephew's trust income through to him, Turbotax will generate a California K-1 for him. I don't want to give him a California K-1. He lives in Oklahoma, and he would ask me why is he getting a California K-1 ? He would ask me why he has to pay California if he resides in Oklahoma ? I don't want to have to deal with that. Therefore, I have retained the income in the trust. The trust will pay all taxes, Federal and California state. It's more expensive that way, but it's simpler, and I don't have to deal with questions I can't answer.
