Trust Taxation in Kaestner Struck Down by U.S. Supreme Court

July 03, 2019

By Karen Goldberg

On June 21, 2019, the U.S. Supreme Court, in North Carolina Dept. of Revenue v. Kimberly Rice Kaestner 1992 Family Trust, held that North Carolina’s statute imposing income tax on a trust solely because the beneficiaries were North Carolina residents was unconstitutional. The trust at issue was created by a New York resident with a New York trustee. After the trust was created, the grantor’s daughter, Kimberly, one of the trust beneficiaries, moved to North Carolina with her family. The trust was later subdivided into three separate sub-trusts for the grantor’s children, including a trust for Kimberly.   

Under the terms of the trust, distributions to the beneficiaries were totally at the trustee’s discretion.  The trust’s only connection to North Carolina was its in-state beneficiaries (Kimberly and her children) who couldn’t demand trust income, did not receive any trust income during the years at issue, and might never receive any income. The Court determined that solely having trust beneficiaries who reside in North Carolina was not enough to provide the minimum connection necessary to sustain the state tax. The Court made it clear, however, that its finding was to be narrowly construed to apply to the facts at hand. Thus, its impact is likely to be limited.

About Karen L. Goldberg

Karen L. Goldberg in the Private Wealth Advisory Group leads the trust and estate practice in the New York office. Karen specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.

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