May 7, 2025

In a significant move for estate planning and tax professionals, Pennsylvania has finally joined the rest of the nation in recognizing federal grantor trust rules. Governor Josh Shapiro signed Senate Bill 815 (S.B. 815) into law on December 14, 2023, marking a pivotal shift in the state’s tax treatment of grantor trusts.

Key Changes

1. Effective Date: The new law takes effect for tax years beginning on or after January 1, 2025.
2. Alignment with Federal Rules: Pennsylvania will now treat grantor trusts as disregarded entities for state tax purposes, mirroring federal tax treatment.
3. Tax Reporting: Income from grantor trusts will be reported on the grantor’s personal Pennsylvania tax return (Form PA-40) rather than on a separate trust return.

Impact on Taxpayers

This change brings several benefits for Pennsylvania residents with grantor trusts:

• Simplified Compliance: The new law eases the burden of filing separate trust returns and remitting state taxes on trust income.
• Enhanced Planning Opportunities: Transactions between grantors and their trusts will now be disregarded for Pennsylvania tax purposes, opening up new estate planning strategies.
• Multi-State Tax Credit: Pennsylvania resident grantors may now be entitled to a credit against Pennsylvania Personal Income Tax for taxes paid to other states on trust income.

What to Do Now

While the changes don’t take effect until 2025, it’s crucial to start planning now:

1. Review existing trusts and consider how the new law will affect your tax situation.
2. Consult with your Omni 360 advisor or Omni Legacy Law attorney to explore new planning opportunities.
3. Prepare for potential changes in estimated tax payments and local reporting requirements.

For more information on Pennsylvania’s tax laws and updates, visit the Pennsylvania Department of Revenue website: https://www.revenue.pa.gov/

Stay tuned for further guidance from the Department of Revenue on specific filing requirements and other details related to this significant change in Pennsylvania tax law.

At Omni 360 and Omni Legacy Law, we’re committed to helping you navigate these changes and optimize your estate planning strategies. Contact us today to discuss how this new law affects your unique situation.