Monday, July 18, 2016

The Situs of a Trust Can Make a Tax Difference

A recent case from North Carolina points out that some thoughtful planning of a trust's situs can make a significant tax difference.  The reason is that state tax rates differ, and some states don't have an income tax.  So, for those clients that have the right set of facts, tax savings can be achieved by having the trust's situs located in the low or no-tax state.  The North Carolina Court of Appeals, in the recent case, said a trust didn't have sufficient minimum contacts with North Carolina to subject the trust to tax in North Carolina.  The court noted that the trust did not have any physical presence in the state during the tax years at issue, contained no North Carolina property or investments, had no trust records that were created or kept in North Carolina, and the place of trust administration was not in North Carolina.  Simply basing the imposition of state tax on a beneficiary’s domicile, by itself, did not establish sufficient minimum contacts with the state to satisfy the Due Process Clause and allow North Carolina to tax a non-North Carolina trust.

So, careful selection of a trustee, the location of trust personal property and trust records could end up saving tax of 5 percent to 10 percent on trust income in many instances. Over time, that can add up.  The case is Kaestner v. North Carolina Department of Revenue, No. COA15-896, 2016 N.C. App. LEXIS 715 (N.C. Ct. App. Jul. 5, 2016).  For more details on the facts of the case, see

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