Updated July 28, 2026. Quick answer: The Supreme Court held that North Carolina could not tax a trust based on the in-state residence of a beneficiary alone, where that beneficiary received no income, had no right to demand any, and could not count on ever receiving any. It is a narrow holding on specific facts — not a general rule that a state cannot tax your trust, which is how it is usually described.
What the case does not do
| Basis for state taxation | Affected by Kaestner? |
|---|---|
| Beneficiary residence alone, with no distributions and no right to demand | Yes — struck down |
| The settlor’s residence | No |
| The trustee’s location | No |
| Where the trust is administered | No |
| A beneficiary who actually receives distributions | No |
So a state can still tax your trust on several independent grounds, and most states do. Kaestner removed one particularly aggressive basis on particularly favourable facts. Reading it as “trusts are not taxable by states” is the kind of over-reading that produces a nasty assessment.
Why the facts mattered so much
The beneficiary in that case had no right to demand anything, received nothing during the years at issue, and could not rely on ever receiving anything. Change any of those and the analysis changes. A beneficiary who takes distributions, or who can compel them, is in a materially different position.
The practical consequence
State trust taxation remains a genuinely multi-state problem: the settlor’s state, the trustee’s state, the administration state and the beneficiaries’ states can each assert a claim on different theories, and more than one can succeed at once. It is worth mapping before a trust is funded rather than after a notice arrives.
No dollar amounts appear on this page. The trust rate brackets are adjusted annually, and the trust threshold for the net investment income tax is not a fixed figure at all — IRC §1411(a)(2)(B)(ii) ties it to the start of the top trust bracket, so it moves every year. Take current figures from the IRS revenue procedure for the year in question.
Sources
IRC §1(e) and §1(j) (as made permanent by P.L. 119-21); §641; §643(a); §644; §651 and §661 (distribution deduction); §663(b) and Treas. Reg. §1.663(b)-2; §671 and §673–677 (grantor trust rules); §675(4)(C) (substitution power); §1411(a)(2) and (b) (net investment income tax); Rev. Rul. 2008-22. North Carolina Dept. of Revenue v. Kaestner Family Trust, 588 U.S. 262 (2019). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.