July 19, 2018

FaegreBD Wins Trust Income Tax Case in Minnesota Supreme Court


MINNEAPOLIS (July 19, 2018) — The Minnesota Supreme Court has ruled in favor of Faegre Baker Daniels’ clients, holding that Minnesota’s attempt to tax trust income based solely on the grantor’s residency was unconstitutional and in violation of the due process clause. The Supreme Court, on a 4-2 vote, issued the ruling in Fielding v. Commissioner of Revenue.

The Supreme Court agreed with the Minnesota Tax Court’s decision that the statute, treating the four irrevocable trusts in the Fielding case as “resident trusts,” was unconstitutional. The Fielding trusts challenged the Minnesota law, which would have subjected them to Minnesota income taxes for the entire duration of the trusts based solely on the fact that the grantor of the trusts, Reid V. MacDonald, lived in Minnesota when the trusts became irrevocable. The court held that the mere fact that the grantor resided in Minnesota on that date was insufficient for the Department of Revenue to tax the trusts on income indefinitely.

The Department of Revenue appealed the Tax Court decision to the Minnesota Supreme Court.

In an opinion from Justice Natalie Hudson, the Minnesota Supreme Court concluded that the trusts lacked sufficient relevant contacts with Minnesota during the applicable tax year to be permissibly taxed, consistent with due process, on all sources of income as residents.

As a result of the ruling, the interest, dividends and capital gains earned by the trusts are not taxable by Minnesota and certain irrevocable trusts created by Minnesota residents after 1995 may be able to claim income tax refunds.

The FaegreBD team representing the trusts included Walter Pickhardt, Laura Carlson and Caitlin Abram.

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