US Supreme Court Decides the Kaestner Trust Case in Favor of Taxpayer; States Can’t Tax Trusts Based Just on the Residence of the Beneficiary

North Carolina Department of Revenue v. Kimberly Rice Kaestner 1992 Family Trust was decided by the United States Supreme Court today, June 21, 2019 by ruling that if the beneficiary does not receive income from the Trust and the beneficiary cannot compel a distribution from the Trust and it is not certain the beneficiary will receive the income from the Trust, then the State may not tax the Trust income that is held in the Trust. The Due Process analysis asks for the minimal connections between the protection, opportunities and benefits given by the State and the person, property or transaction the State seeks to tax. “[T]he Due Process Clause requires a pragmatic inquiry into what exactly the beneficiary controls or possesses and how that interest relates to the object of the State’s tax…Similar analysis also appears in the context of taxes premised on the in-state residency of settlors and trustees.”

In this case, the Trust was created outside North Carolina and the Trustee was outside North Carolina. The Trust beneficiary lived in North Carolina but did not have the right to compel distributions from the Trust. The State of North Carolina tried to tax the Trust because a Trust Beneficiary lived in the State. The State’s connections were not sufficient to tax the Trust.

Interestingly the Court noted this is a similar analysis that applies to states that tax trusts based upon the residence of the settlor or beneficiary. Perhaps the Court is telegraphing the proper analysis to the Fielding case from Minnesota. The Fielding case was denied review the the United States Supreme Court so now the Minnesota Supreme Court Ruling in that case stands and the Minnesota long arm statute is unconstitutional.

About Robert McLeod

I can help you fight a will, fight a power of attorney, will contest, fight a guardianship, fight a conservatorship, create or revoke powers of attorney, wills or revocable trusts. What is probate? I can answer that for you. I can help you with all your probate needs.
This entry was posted in Beneficiary, Due Process, Fiduciary Income Tax, Grantor Trust, income tax, Kaestner, Minnesota Supreme Court, Residence, Resident Trust, Supreme Court, tax, trust, Trust Income Tax, Trust Law, United States Supreme Court. Bookmark the permalink.