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Trusts and Situs After Kaestner: Establishing Domicile, Relocating a Trust, and Taxing Beneficiaries

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 8, 2021

Recorded event now available

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This course will provide professionals who advise and prepare returns for trusts with updated information on trusts' situs in light of the Kaestner decision. Our experts will cover the criteria states use to tax trusts and trust beneficiaries, steps to relocate a trust, and when best to do so.

Description

As we slowly come through the uncertainty created by the pandemic and brace for changes in the federal tax code, proper trust jurisdiction selection is more important now than ever. Some states tax a trust based on the location of its administrator, others based on the residence of beneficiaries, and still others may use the state of formation as a basis for taxation. Knowing where a trust is domiciled impacts the taxes paid by the trust and its beneficiaries. Avoiding and deferring these taxes enables significant growth of trust assets, making trust situs a costly or cost-saving determination.

The U.S. Supreme Court in N.C. Dep't of Rev. v. Kimberly Rice Kaestner 1992 Family Trust ruled that a state cannot tax a trust-based solely on the residency of a beneficiary when the beneficiary has no guarantee or right to the income taxed. The Court found that under the Due Process Clause of the U.S. Constitution, a state cannot tax a taxpayer when the taxpayer does not have a minimal connection to the state. Post-Kaestner, advisers and trust administrators need to review past and current residences of beneficiaries, grantors, trustees, and the trust itself. North Carolina had received over 450 refund claims.

Practitioners recognize the benefits of a trust being taxed in one of eight no income tax states (AK, FL, NV, NH, SD, TX, WA, and WY), or the tax-savings of a trust paying tax in a state with a low-income tax rate (i.e., not California). However, other state issues, including privacy, creditor protection, and the availability of powerful trust law concepts such directed trust and trust protectors influence a decision on where to situs a trust.

Listen as our panel of experts explains how to determine a trust's domicile, the methods currently used by states to tax trusts, how to change where a trust is taxed, and the impact of the Kaestner case.

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Outline

  1. Impact of domicile on trusts
    1. When and where to set up an out-of-state trust
    2. Strategically locating trusts to minimize state taxes
  2. Determining situs and state taxation of trust
    1. Analyzing the trust document
    2. State methods used to determine domicile and trust taxation
  3. Trust residency considerations other than tax
  4. Changing situs: decanting, modifications, and relocation
  5. Impact of N.C. Dep't of Revenue v. Kaestner 1992 Family Trust
    1. Which states and methods are impacted
    2. When to file a claim for a refund

Benefits

The panel will review these important issues:

  • State methods for taxing trusts
  • Situs considerations when forming a trust
  • Objective comparison of "top tier" trust jurisdictions
  • When and how to relocate a trust
  • Impact of Kaestner on trust taxation
  • Amending returns in light of Kaestner

Faculty

Edmondson, S. Gray
S. Gray Edmondson
Partner
Edmondson Sage Allen

Mr. Edmondson practices in partnership, corporate, and individual tax planning; business transactions, including...  |  Read More

Lipkind, William
William D. Lipkind
Partner
Wilson Elser

Mr. Lipkind, Chair of the firm’s Tax Planning and Controversies Practice, concentrates his practice in the areas...  |  Read More

Warren, David
David A. Warren, JD
Co-Founder and Chairman of the Board
Bridgeford Trust Company

Mr. Warren is an attorney with over 20 years of professional experience practicing law and working in the financial...  |  Read More

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