Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, February 27, 2019

United States Supreme Court to Consider Whether States May Tax Trusts Based on Residence of Beneficiary

TrusttaxThe numerous changes in the tax law has caused many to alter their planning schemes, especially when it comes to those that have to pay state income taxes. Eleven states also currently tax trust beneficiaries based on their state of domicile. A number of practitioners believe that this policy violates the Due Process Clause of the United States Constitution, and the Supreme Court has decided to settle the issue.

In North Carolina Department of Revenue, Petitioner v. The Kimberley Rice Kaestner 1992 Family Trust, the state's Supreme Court held that the trust “did not have sufficient minimum contacts with the State of North Carolina to satisfy due process requirements….” Therefore, the state could not tax the trust solely because of the residency status of the beneficiary.

The facts of the case may make the decision of the Court quite narrow. The trust was not required to make distributions to its beneficiaries and in fact did not make distributions to the beneficiaries residing in North Carolina during the years at issue. The trustees were not located in North Carolina, the trust records were not kept in North Carolina and the trust’s financial advisors and assets were also outside of North Carolina.

See Margot Summers Edwards, United States Supreme Court to Consider Whether States May Tax Trusts Based on Residence of Beneficiary, Lexology, February 25, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.


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