Estate, Trust & Wealth Preservation

Publications & Media

“Tax on trusts is unconstitutional if no connection to Illinois”

Southern Business Journal Kirk A. Hoopingarner, E. King Poor

Following is an excerpt:

A state’s power to tax reaches far and wide, but it’s still bounded by constitutional limits.

In the words of the U.S. Supreme Court, “The simple and controlling question is whether the state has given anything for which it can ask in return.” This basic principle applies equally to the taxation of trust income.

For decades, courts across the country have grappled with whether state taxes on trust income violate due process. In December 2013, the Illinois Appellate Court in Linn v. Dep’t of Revenue, 2013 IL App (4th) 121055, entered the debate and held that taxing the income of a trust with no current connection to Illinois was unconstitutional.

The facts in Linn begin in 1961. In that year, an Illinois resident established an inter vivos trust governed by Illinois law, with an Illinois trustee, for trust property located in Illinois. The trust agreement provided for a power of appointment to distribute trust assets to a different trust or trustee. In 2002, new trustees (also residing in Illinois) distributed the assets to create a new trust now governed by Texas law with a new trustee residing outside of Illinois.

Originally published in Southern Business Journal, February 4, 2014


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