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U.S. SUPREME COURT RULES STATE NOT PERMITTED TO TAX UNDISTRIBUTED INCOME FROM NON-RESIDENT TRUST

The U.S. Supreme Court recently rules that “the presence of in-state beneficiaries alone does not empower a state to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to ever receive it”.

U.S. SUPREME COURT RULES STATE NOT PERMITTED TO  TAX UNDISTRIBUTED INCOME FROM NON-RESIDENT TRUST

In this case, North Carolina wrongly taxed the beneficiaries who moved to North Carolina from New York. The trust was established in New York and the original trustee was also a New York resident. The trustee was given the sole discretion to distribute the trust assets in such amounts as he decided.

The beneficiaries sued North Carolina alleging a violation of the Due Process Clause of the 14thAmendment since the state lacked the needed minimum contacts with the trust. The Supreme Court agreed with the beneficiaries as it ruled the resident beneficiaries did not have enough “possession, control or enjoyment of the trust property or a right to receive the property.”

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