Technical article

Nevada or South Dakota: Does the State Tax What My Grandchildren Abroad Receive?

The sources studied nine US states: South Dakota, Nevada, Alaska, Wyoming, Delaware, Tennessee, New Hampshire, Florida and Texas.

By Neil Solomon · 3 min read

Imagine a widow in Texas with two sons, one in Mexico and one in Spain. She is looking at Nevada and South Dakota as places to run a trust, and she has a narrow question. If the trust is run from one of those states, does the state tax what her grandchildren abroad receive?

The sources studied nine US states: South Dakota, Nevada, Alaska, Wyoming, Delaware, Tennessee, New Hampshire, Florida and Texas. Eight of them levy no state income tax on the trust's income. The ninth, Delaware, taxes trusts but gives a deduction for income kept for heirs who live elsewhere. The next article in this group covers that rule.

Twelve states and the District of Columbia have an estate tax, and five have an inheritance tax. None of the nine is among them.

The sources vary in weight. South Dakota's own revenue department states the facts for itself (tier A). Nevada's list comes from the state tax department, which names its taxes and shows no income or estate tax. Alaska, New Hampshire and Texas rest on a Tax Foundation list and a Key Wealth summary (tier B). Wyoming's statement comes from a law firm's memo to the legislature in 2022 (tier C).

Two items carry a caveat. Florida's constitution lets the state tax business and trust-type entities at up to 5%, and whether a trust falls inside that is not settled in the sources. Texas has a franchise tax on taxable entities. Grantor trusts held by natural persons or charities are outside it, and whether a given non-grantor trust is taxed is open.

On withholding, the state sources describe no charge on payments to heirs abroad. That is the reading of eight states with no income tax, and Delaware's statute has none in the part read.

The federal rules sit above all of this. Whether a trust counts as American or foreign for federal tax does not depend on the state. The IRS treats a trust as American if a US court can exercise primary supervision and one or more US persons control all substantial decisions. Otherwise it is a foreign trust. Choosing Nevada or South Dakota does not move that line.

You might say: "No state tax means nothing to pay." The state may charge nothing, and the federal side may still apply. The country where a grandchild lives has its own rules on what arrives.

You could ask three things of any state. Does it tax the trust's income, and is there a deduction for heirs elsewhere? Is there a death tax? Does a trustee in that state change whether the trust is resident? That last question matters in Delaware, where the trustee's home can decide it.

This touches the grandchildren, who receive, and the trustee, who may live or have an office in the state. It also touches the papers that show who holds the decisions.

If you looked at a state for a trust and what you read changed your plan, what was it? Share it here. Someone with heirs abroad may be reading the same pages.

Figures are estimates for planning, based on public data. Date read: October 2026.