Download full alert 

On June 21, 2019 the Supreme Court released the North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust (Docket No. 18-457) in a unanimous decision finding in favor of the taxpayer. The Court held that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries. The North Carolina statute allows a trust to be taxed on its income solely because the trust has a North Carolina beneficiary. In Kaestner, although the beneficiaries lived in North Carolina, they had no right to demand income, had never received any income and it was uncertain the beneficiaries would receive the income.

Due Process and Minimum Contacts

The Court considered North Carolina's taxation of the out-of-state trust from the perspective of the Due Process Clause and whether there were requisite "minimum connections" between the State and the trust. The Court noted that when a State bases its tax on the in-state residence of a trust beneficiary, the Due Process Clause demands an "inquiry into what exactly the beneficiary controls or possesses and...

Explore More Insight
View All