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TAXATION OF TRUSTS

North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust

Issues

Does the Due Process Clause of the Fourteenth Amendment permit states to tax the undistributed income of non-resident trusts based solely on the trust beneficiaries’ in-state residency?

In this case, the Supreme Court will determine whether a state in which a trust’s beneficiaries reside has the power to tax that trust’s income. Under the Due Process Clause of the Fourteenth Amendment, a state has the authority to tax an individual or entity—such as a trust—if that entity has “minimum contacts” with the state. North Carolina Department of Revenue argues that a beneficiary’s residence in a state provides sufficient minimum contacts between a trust and a state to authorize the state to tax the trust’s income. Kimberley Rice Kaestner 1992 Family Trust, on the other hand, contends that a state does not have the authority to tax a trust’s income based solely on the fact that beneficiaries reside in that state. The outcome of this case will determine the limits on state power to tax trusts and will have implications for all those involved in trust creation, management, and benefits.

Questions as Framed for the Court by the Parties

Whether the due process clause prohibits states from taxing trusts based on trust beneficiaries’ in-state residency.

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