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


Conducted on Thursday, October 31, 2019

Recorded event now available

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Program Materials

This webinar will provide professionals who advise and prepare returns for trusts 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 it is best to do so.

Description

The possibilities of where and how states may tax a trust are endless. 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. Decided unanimously, 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 and will not receive a benefit from the taxes paid. Post-Kaestner, advisers and trust administrators need to review past and current residences of beneficiaries, grantors, trustees, and the trust itself. Well before the Kaestner ruling, 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 and creditor protection, influence a decision to relocate.

Relocating a trust is complex. First, the residence of all parties to the trust must be determined. Then consideration is given to how a trust is taxed in each applicable state. The states of each beneficiary, where the trust was formed, where its assets are held, and the residence of the trustee most often includes multiple states. Finally, the challenges of the methods for changing situs (decanting, moving assets, situs change, trustee change, etc.) must be weighed. Each of these steps individually is a monumental task.

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 determined 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 a claim for refund should be filed

Benefits

The panel will review these important issues:

  • State methods for taxing trusts
  • Situs considerations when forming a trust
  • 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 Dixon

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

Co-Founder and Chairman of the Board
Bridgeford Trust Company

Mr. Warren is an attorney with over 15 years of professional experience practicing law and working in the financial...  |  Read More

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