North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust

The case centers on the North Carolina Department of Revenue's attempt to impose state income tax on the Kimberley Rice Kaestner 1992 Family Trust. The trust was established in New York, administered by a New York trustee, and held assets outside North Carolina. The beneficiary, Kimberley Rice Kaestner, resided in North Carolina but received no distributions from the trust during the tax years in question. North Carolina sought to tax the trust's accumulated income solely based on the beneficiary's in-state residence. The trust challenged the tax, arguing that it violated the Due Process Clause of the Fourteenth Amendment. The U.S. Supreme Court granted certiorari to resolve the constitutional limits of a state's power to tax a foreign trust.

The U.S. Supreme Court unanimously affirmed the North Carolina Supreme Court, holding that the state's taxation of the trust based solely on the beneficiary's residence, without any trust distributions, violated the Due Process Clause. The trust lacked sufficient minimum connections with North Carolina.

Whether a state can tax the undistributed income of a trust whose beneficiary resides in the state, where the trust lacks other minimum contacts, violates the Due Process Clause.

The decision significantly limits state taxation of out-of-state trusts, providing crucial clarity for interstate wealth management and estate planning. It protects trusts from aggressive state tax schemes and reinforces that mere beneficiary residence does not establish tax jurisdiction, impacting trust administration, state revenue strategies, and the structuring of family trusts nationwide.