Supreme Court Rules States Cannot Tax Trust Income Solely Based on Beneficiary’s Residence

By Jason S. Palmisano July 8, 2019Court Decisions

In N.C. Dep’t of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, the U.S. Supreme Court issued a unanimous decision on June 21, 2019 holding the State of North Carolina may not tax a beneficiary on the income of a trust merely because the beneficiary resides within its borders.  In Kaestner, an individual domiciled in New York formed a trust for the benefit of his children.  The trustee lived in Connecticut.  One of the beneficiaries moved to North Carolina and several years later the State assessed a tax of more than $1.3 Million dollars against the beneficiary under a law authorizing the State to tax any trust income that “is for the benefit of” a state resident.

In the victory for the taxpayer, the Court found the beneficiary had no right to, and did not receive, any income distributions from the trust during the years in question.  Under the terms of the trust the beneficiary had no right to demand trust income nor could she count on receiving any specific amount of income in the future.  The distributions from the trust were in the absolute and sole discretion of the trustee.  Further, the trustee maintained no physical presence in North Carolina, made no direct investments in the State, and held no real property there.

While the ruling of Kaestner is very narrow, if you are a trustee or a beneficiary of a trust that has been taxed simply based on residing in a particular state then you should contact your CPA to discuss filing refund claims for any open tax years.  This ruling also serves as a reminder to contact your estate planning attorney to review what you might do to improve a trust you have to strengthen a position that tax is not due in a particular state. If you need assistance or have questions about estate planning strategies and trusts, please contact PLDO estate and trust attorney Jason S. Palmisano at 561-362-2030 or email



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Jason S. Palmisano is a Senior Counsel with Pannone Lopes Devereaux & O'Gara LLC and a member of the Estate and Trust Planning, Administration and Litigation Team. He focuses his practice on counseling clients in all areas of trust and estate planning and administration, Elder Law and guardianship law, Medicaid planning, disability planning and probate administration.

Attorney Palmisano has significant experience advising clients on wealth management, asset protection, charitable giving strategies and in all matters of tax planning, including multinational tax and advising clients on business and succession planning. In addition, his practice includes preparing a wide variety of trusts, including grantor, irrevocable life insurance, special needs and qualified personal residence trusts, among others.

Prior to his legal practice, he was a Campus Director for Athletes in Action, where he provided leadership training and led charitable giving campaigns.

Attorney Palmisano earned his J.D. from Samford University, Cumberland School of Law, cum laude, his LL.M in Taxation from the University of Florida Levin College of Law and a B.S. in Math Education from the Miami University in Ohio.  He is licensed to practice in Florida and is a Florida Bar board certified lawyer in wills, trusts and estates law, which is a highly regarded designation that recognizes member-attorneys for their high standard of professionalism, ethics and special knowledge, skills and proficiency in practice areas.

To contact Attorney Palmisano, call at 561-362-2034 or email  

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