On Friday the 21st of June the Supreme Court decided unanimously to strike down North Carolina’s attempt to tax undistributed income of a trust properly administered in New York State. A state tax authority cannot tax an out-of-state trust just because its beneficiaries live in the state, the Supreme Court of the United States has ruled in the Kimberley Rice Kaestner 1992 Family Trust case. North Carolina had sought to tax the New York-based trust’s income even though it had made no distributions to the North Carolina-resident beneficiaries nor earned any of its income in the state. The Court held unanimously that the beneficiary’s residence did not establish enough of a connection for the trust to be taxed there, as income not yet distributed cannot be taxed when it is uncertain whether the resident beneficiary will ever receive it.
Click the following links to read more about this case:
Opinion analysis: Presence of in-state beneficiaries alone insufficient for state to assert jurisdiction to tax trust income
U.S. Supreme Court upholds NC court ruling on 1992 family trust tax issue