Tax Legal Services · Primary-source case analysis

Kaestner Trust: Beneficiary Residence Alone Did Not Support State Taxation

By Aneeta Mishra and Timothy Chan

Published April 24, 2026

Kaestner Trust applies due-process nexus principles to state taxation of trust income and carefully limits its holding to the beneficiary contacts before the Court.

North Carolina taxed accumulated trust income

The trustee lived outside North Carolina, administered the trust elsewhere, and made no distributions to the in-state beneficiaries during the tax years. State law nevertheless taxed the full undistributed income because beneficiaries lived in North Carolina.

Due process requires a fiscal relationship

A state must identify minimum contacts between the taxpayer, the taxed property or activity, and the state. In the trust context, the Court examined the beneficiaries’ control, possession, enjoyment, and actual receipt of the income.

The beneficiaries had no present control or enjoyment

The trustee retained absolute discretion over distributions, and the beneficiaries could neither demand income nor assign their interests. Their residence and future possibility of receiving funds were insufficient on the record presented.

Disposition

The Court unanimously affirmed the judgment invalidating the tax. It did not decide taxation where beneficiaries receive income, possess a right to demand it, or hold materially different control over trust assets.

Key takeaways

• Identify the precise state contact used to tax the trust.
• Separate trustee, settlor, beneficiary, and asset contacts.
• Document distribution rights and actual distributions by tax year.
• Read the holding narrowly when the trust terms or contacts differ.