Supreme Court - Beneficiary Residency Alone is Insufficient Basis for State Trust Taxation

Updated: Dec 9, 2019

MARKET TREND: In which state is a trust subject to taxation? The recently decided Kaestner case provides the U.S. Supreme Court’s latest guidance on this important income tax issue.

SYNOPSIS: On June 21, 2019, the U.S. Supreme Court rendered its decision in the case of North Carolina Department of Rev. v. Kimberley Rice Kaestner 1992 Family Trust, a case which asked for a decision on whether a non-grantor trust can be subjected to state income taxes on its undistributed income solely on the basis of a beneficiary’s residence in such state. The Supreme Court held no, so long as the beneficiaries: (1) did not receive any income from the trust during the years in question; (2) had no right to demand trust income or otherwise control, possess, or enjoy the trust assets in the years at issue; and (3) could not count on receiving income from the trust in the future. The Supreme Court, however, clearly limited its ruling to the circumstances presented, holding that it did not “imply approval or disapproval of trust taxes that are premised on the residence of beneficiaries whose relationship to trust assets differs from” those in the Kaestner case.

TAKE AWAYS: The Kaestner decision likely avoided a pandora’s box of issues that could have resulted from permitting state taxation based solely on a beneficiary’s residence, including other states seeking to expand their trust taxation and increased administrative burdens for trusts with beneficiaries in multiple states. Notably, though, the limited holding does not appear to prevent a state from considering a beneficiary’s residence as one of many factors when taxing a trust. Accordingly, clients and advisors should continue to monitor the residency of trust fiduciaries and beneficiaries to confirm that trust income is being accurately reported and paid to the appropriate states. They also should use this opportunity to review the situs of their trusts and whether any changes are recommended to address the trust’s state tax exposure. Such potential exposure also should be considered when selecting a jurisdiction for a new non-grantor trust, factoring in the residence of the grantor, current and future trustees and beneficiaries, the sources of trust income, etc.

This material is intended for informational purposes only and should not be construed as legal or tax advice. It is not intended to replace the advice of a qualified attorney, tax advisor, or plan provider.

#trust #estatetaxplanning #EstateTax

11 views0 comments

Copyright © 2021 TRC Financial. All rights reserved.

TRC Financial Insurance Services and affiliates are presently licensed to sell insurance and annuity products, as well as other securities products in the following states: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia and Wisconsin. Residents of other states should consult with a local registered representative for insurance services and securities products. Proper state registration is mandatory prior to conducting business in that state. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review. CA License - #0E14614 \ CA License #0B40789 \ CA License #0B52893 - The principle place of business and the state of domicile for TRC Financial is: 1 Post, Suite 150, Irvine, CA 92618. Securities offered through Registered Representatives of M Holdings Securities, Inc., a Registered Broker/Dealer Member FINRA / SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. TRC Financial is independently owned and operated and is a Member Firm of M Financial. Please go to and click on “Disclosure Statement” at the bottom of the home page for further details regarding this relationship. For important information related to M Securities, refer to the M Securities’ Client Relationship Summary (Form CRS) by navigating to

(949) 509-2940