Incomplete gift nongrantor trusts: Personal Income Tax Law.

Senator Valladares's proposed modification to California's tax treatment of incomplete gift nongrantor trusts carves out a specific exemption for charitable remainder trusts while maintaining existing regulations on trust income taxation.

The legislation refines how incomplete gift nongrantor trusts are defined and taxed under state law. Under current rules, income from these trusts is generally included in the grantor's gross income. The bill creates an explicit exemption for trusts that qualify as charitable remainder trusts under Section 664 of the Internal Revenue Code. Additionally, trust income may be excluded from a grantor's gross income when the trust distributes at least 90% of its distributable net income to charitable organizations and meets specific filing requirements with the Franchise Tax Board.

The Franchise Tax Board receives authority to develop implementing regulations and guidelines outside the standard administrative rulemaking process. According to the bill's findings, this modification aims to preserve charitable giving through these trust structures, though the legislation notes no data collection requirements accompany the changes. As a tax levy, the provisions would take effect immediately upon enactment.