North Carolina Dept. of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (18-457)
argument 18-457North Carolina Dept. of Revenue v. Kimberley Rice Kaestner 1992 Family Trust
Supreme Court of the United States
1h 1m
6 speakers
8 chapters
transcribed 8 days ago
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Transcript
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What is the North Carolina statute that taxes trust income and how does it work?
We will hear argument next in case eighteen four hundred fifty seven, the North Carolina Department of Revenue versus the Keysner uh Rice uh nineteen ninety two Family Trust. Mr Soczak.
Mr Chief Justice, and may it please the Court. This case involves a statute that taxes trust income in proportion to the interests of in state beneficiaries. Now trust beneficiaries it bears remembering are the true owners of trust income under trust law. Because of all the benefits and protections that states extend to their residents, the state's prorata tax on trust income comports with due process. But you couldn't you couldn't tax the beneficiaries on that accumulated income when they haven't received it. Well, Your Honor, Stewart might be uh to the contrary, this court's affirmance in Stewart is a situation where uh the opinion of the Pennsylvania Supreme Court that was affirmed doesn't recite any
uh receipt of actual income and yet the court affirmed a tax on the uh beneficial interest. But North Carolina is not doing that. North Carolina is taxing the uh Accumulating income. connection with North Carolina to impose a tax on the trust It doesn't have a connection. So Your Honor, the point that connects them is that the beneficiary is part of the trust. Indeed, under trust law, she is the key part of the trust, its very heart. And because of that The whole isn't the trust for her and her children. She is the name beneficiary, however, under section one point two of the trust instrument, the children may also receive uh distributions.
So we've already said in prior cases and you distinguish them as being uh in opposite today. But you can't. tax the whole trust. you gotta ch only tax that which the beneficiary is An owner of So How do we know she's going to receive anything? Any time. She could leave it for her kids.
uh
she
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In
in the event of this case, first of all I mean the the trustee could s could decide to leave it for the kids. That's true. But several points. First of all, on the facts here, Ms. Kestner did in fact receive the trust income and the decanting occurred only after consultation. It
was alone two hundred and fifty thousand after this tax period.
Immediately after there was a loan, but in addition.
What makes it your right? under any circumstance. to tax all of the trust income. where there is no guarantee that she is going to receive all of it at any point.
Several points. One is during the entire period when the income is accumulating, the state is providing her with protection and benefits.
Pay for that. He's not required to. The trust doesn't require it. give some discretion to pay for some of her expenses, but Nothing in the trust says that she has to pay for The benefits that you are giving her as a state.
But it is the very fact that those benefits and protections are being extended that enables the trustee to uh not give distribution.
He has absolute discretion. Whether she had a need or not, he doesn't have to fulfil it.
Under trust law Uh even what what is called sole and absolute discretion is qualified by the need to look out for the needs of the beneficiaries, and that is actually an express term of the trust instrument here.
I probably should know this, but where is the trust located? How do you decide that? The trust has been a very important thing. So if if you wanted if the home of the trust wanted to tax the the same uh uh income that you're trying to tax, where where would that be?
So the trust has no CITAS. Since Quill and other decisions, the focus really is on where are benefits and protections being extended. And also in Americold, this court, uh Greeno as well, the court noted that a trust is a mere abstraction. And that's why that's really what brings us here.
So you would you would say there's no state that could say we're the home state uh of the trust and we're the ones that have the primary claim on the taxation of this income?
So this under trust law A trust has something called a principal place of administration and one of the arguments my friend is making is that that and or where the trustee lives are the only uh contacts that count.
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Chapters
8 chapters
1
What is the North Carolina statute that taxes trust income and how does it work?
0:00–7:09
2
How do the parties argue about the beneficiary’s ownership versus the trustee’s control?
7:09–14:14
3
What is the pro‑rata allocation rule and how would it apply to the Kestner beneficiaries?
14:14–21:04
4
Which other states use beneficiary residency or trust administration to tax trusts, and why is North Carolina unique?
21:04–27:43
5
How do the Justices frame the due‑process and fairness challenges to the tax?
27:43–34:18
6
What precedent cases (Stewart, Safe Deposit, Hansen, etc.) are cited and how are they distinguished?
34:18–42:45
7
How does the Court address the “throw‑back” tax and the allocation of tax burden among states?
42:45–49:50
8
What is the final argument for overturning the lower court’s decision and what outcome do the parties seek?
49:50–1:01:55