I am in the process of filing my first Massachusetts Fiduciary Income Tax Return – Form 2. Before I press the ’send’ button, I want to double check my understanding of the Massachusetts state taxation of non-resident beneficiaries in the following case.
I’m the Massachusetts-resident trustee and also one of three beneficiaries of an irrevocable trust. The beneficiaries share all income equally (one-third each). The other two beneficiaries are non-resident; one of whom lives in New Hampshire and the other lives in Washington, DC. The trust derives all its income from interest and dividends paid by mutual funds administered by Fidelity and Vanguard.
Question 1. On the Massachusetts Form 2, I allocate one-third of the trust’s taxable income to me, the resident beneficiary. The other two thirds are allocated to the non-resident beneficiaries and would not be subject to Massachusetts tax. Is this correct?
Question 2. How is the above result reflected on Massachusetts Form 2 Schedule B/R (Beneficiary/Remainderman)?
Specifically, Form 2, Schedule B/R asks for each beneficiary: (a) “Total Income” - which I assume is the total income allocable to that beneficiary. (b) “Percentage of income” - which is 33.33%; and (c) “Percentage of taxable income” - which I assume is the percentage of Massachusetts taxable income. This would be 33.33% for the resident beneficiary and 0.0% for the non-resident beneficiaries (the income from interest and dividends from a mutual fund are not Massachusetts source income). Is this correct?
Any thoughts and guidance are much appreciated.
