Does a beneficiary's residence alone let a state tax undistributed trust income?
Key takeaway
A beneficiary's residence alone does not let a state tax undistributed trust income in the circumstances the Supreme Court decided in Kaestner. The Court held that in-state beneficiary residence alone cannot support state taxation of undistributed trust income when the beneficiaries cannot demand income and may never receive any. The Court limited its holding to those facts.
What the Supreme Court held
The case involved beneficiaries who could not demand income and might never receive any.
The Court stated that the presence of in-state beneficiaries alone does not authorize a state to tax trust income not distributed to them, where they have no right to demand it and are uncertain to receive it.
The Court's due process analysis focuses on what the beneficiary can control, possess, enjoy or receive from the trust assets.
The facts the holding rests on
The Court said it addresses only circumstances in which a beneficiary receives no trust income, has no right to demand that income and is uncertain to receive a specific share of it.
The Court reserved for another day whether a different result would follow if the beneficiaries were certain to receive funds in the future.
What the Court left open
The Court limited Kaestner to its facts and expressed no opinion on state trust statutes that rely solely on beneficiary residency.
Thresholds and rates change. Check the state's own current figures.