Wills, Trusts & Estates Prof Blog

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

Thursday, May 9, 2019

Article on The Supreme Court, Due Process and State Income Taxation of Trusts

ScotusBridget J. Crawford & Michelle S. Simon recently published an Article entitled, The Supreme Court, Due Process and State Income Taxation of Trusts, Wills, Trusts, & Estates Law eJournal (2019). Provided below is an abstract of the Article.

What are the constitutional limits on a state’s power to tax a trust with no connection to the state, other than the accident that a beneficiary lives there? The Supreme Court of the United States will take up this question this term in the context of North Carolina v. Kimberley Rice Kaestner 1992 Family Trust. The case involves North Carolina’s income taxation of a trust with a contingent beneficiary, meaning someone who is eligible, but not certain, to receive a distribution or benefit from the trust, who resides in that State. Part I of this Essay explains the background of Kaestner Trust and frames the constitutional questions that will be before the Court at oral arguments on April 16, 2019. Part II examines how and why due process applies in the state income taxation context, with a particular emphasis on how familiar concepts of general and specific jurisdiction apply uneasily to donative trusts. Part III articulates the reasons that the Court should hold that a State has no constitutional authority to impose a tax on trust income where the trust’s only connection with the forum State is the residence of a contingent beneficiary. Kaestner Trust is the most important due process case involving trusts that the Court has decided in over sixty years; it bears directly on the fundamental meaning of due process.


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The authors consistently refer to the beneficiary of the Kaestner trust as "contingent," because the trustee nominally had unfettered discretion to withhold distributions from her. At common law, however, the correct description of her interest is vested subject to defeasance, either by her not surviving to complete distribution at age forty, or by the trustee exhausting the trust prior to that date through distributions to other eligible beneficiaries. In fact she consented to a decanting to a trust that would not distribute outright at age forty, which is another way of saying the same thing. The fact remains, however, that her interest in the trust was vested, not "contingent," and that she had enforceable rights.

Posted by: Russ Willis | May 10, 2019 4:44:37 PM

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