2019-18: States can't tax trust income solely based on beneficiary's residency - Spidell

2019-18: States can’t tax trust income solely based on beneficiary’s residency


The U.S. Supreme Court ruled that North Carolina cannot tax the income of a New York trust based on the North Carolina residency of the trust’s beneficiary when the beneficiary did not receive any income from the trust and had no right to control or possess the trust assets. (North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (June 21, 2019) Case No. 18-457)

In its decision, the Court noted that California also looks at the residency of a trust’s beneficiaries in determining whether a trust’s income may be subject to tax, but specifically stated that its decision does not address California’s taxation of trusts. Under California law, a trust’s undistributed non-California source income is apportioned to and taxable by the state based on the residency of both the trust’s trustees and noncontingent beneficiaries. (R&TC §§17743, 17744)

To read the Supreme Court opinion, go to:

www.supremecourt.gov/opinions/18pdf/18-457_2034.pdf

More information on this case and what it means for California beneficiaries will be included in upcoming issues of Spidell’s California Taxletter. Click here and subscribe today.