Avoid State Taxes on Crypto With US Supreme Court's Recent Trust Decision?

Of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, the U.S. Supreme Court unanimously said that a state could not tax out-of-state residents on trust income without minimum contacts.

Trust tax rules can be complex, but that means the trust itself pays the taxes.

Some trusts are foreign, meaning that they are set up outside the U.S. Those rules are complex, but if you are a U.S. person, you should not assume that you can avoid U.S. taxes with a foreign trust.

Some trusts are set up with an eye on reducing or avoiding state taxes - say, if you are in California and don't want to move to Nevada before you sell your Bitcoin.

The usual grantor trust for estate planning doesn't help, since the grantor must include the trust income on his/her own tax return.

The idea is for the income and gain in the NING or DING trust not to be taxed until distributed, when the distributees will hopefully no longer be in the high tax state.

North Carolina caseThe court ruled that North Carolina's tax statute asserting jurisdiction on a foreign trust based solely on the residence of a beneficiary was too broad. But it is still constitutional for a state to tax based on the residence of the trustee or the site of the trust's administration.

In contrast, many NING/DING trusts are formed by the person in the high tax state trying to avoid state tax - a person in California, for example.

Depending on the facts of the NING/DING trust the Supreme Court's ruling seems pretty limited.

Will your NING/DING trust work to shield you and your beneficiaries from state tax? Creative trusts can be worth trying, depending on the right facts, but you need to be careful.