Carla Spivack has made available for download her article, Due Process, State Taxation of Trusts and the Myth of the Powerless Beneficiary: A Response to Bridget Crawford and Michelle Simon, related to the Kaestner case. The Abstract is as follows:
This piece takes issue with Bridget Crawford and Michelle Simon’s argument in their article about the recent Supreme Court case North Carolina Department of Revenue v. Kaestner Family Trust (argued May 16, 2019) (The Supreme Court, Due Process and State Income Taxation of Trusts (67 UCLA L. REV. DISC. 2 (2019)). First, plaintiff Kimberly Rice Kaestner was not, as Crawford and Simon (and the Trustee) claim a “contingent beneficiary” (the “powerless beneficiary” of my title), meaning that any distributions she might receive were wholly dependent on the trustee’s decision and were beyond her control. This is not correct—the trustee’s discretion was hemmed in by many factors, in both the law and in the trust instrument itself, which gave Kaestner rights to the assets. Second, Crawford and Simon support the trust’s argument that North Carolina had no jurisdiction to tax the trust. The issue of the state’s jurisdiction over the trust, however, asks the wrong question, throwing out a red herring. The real question is whether the state has jurisdiction to tax Kaestner, the beneficiary, on the trust income she benefitted from while she lived in the state. As I show, she did benefit from her trust income during this time, and in significant ways. Allowing a state to tax a resident on income they benefit from is perfectly consistent with due process. Ultimately, this case is an opportunity for the Court to see through the sleight of hand of the trust’s title split—by which it places legal title in the trustee and beneficial title in the beneficiary. This a sleight of hand has created too many tax shelters for the wealthy, helped deplete the public fisc, and undermined tax equity.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.