In a decision that presents meaningful income tax planning opportunities for Georgia residents, especially business owners and wealthy families, the U.S. Supreme Court unanimously ruled in North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, 588 U.S. ____, that North Carolina violated the due process clause of the U.S. Constitution by taxing the undistributed income of an out-of-state trust based solely on the presence of in-state beneficiaries. In the simplest terms, this decision means that a state cannot tax undistributed income of a discretionary trust where the trust’s only contact with the state is a resident beneficiary. The ruling appears to render unconstitutional applicable Georgia law that is substantially similar to the North Carolina law at issue in the Kaestner case. Current Georgia law seeks to impose state income tax on any trust property managed for the benefit of a Georgia resident, without regard to the residence of the trustee or the location of the trust assets. A non-resident trustee of a non-Georgia trust who has paid Georgia state income taxes on undistributed trust income may be entitled to seek a refund from the state.
This decision clarifies planning opportunities involving non-resident trusts for Georgia residents, which may provide state income tax savings for Georgia clients.
Contact us to learn more about planning opportunities presented by this ruling, or to evaluate whether you, or a trustee of a non-Georgia trust of which you are a beneficiary, may be entitled to a refund for taxes paid on undistributed income of the trust.