Estate Tax: New York's Proposed Fiduciary Income-Tax Changes Would Have Faced Likely Challenges on Constitutional Grounds

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

New York's recent proposal to tighten its already strict rules on the income-tax definition of a resident trust illustrates the dangerous tendency of states to seek more revenue from trusts than they are constitutionally authorized to reach. This article, adapted from a longer analysis that first appeared in BNA Tax Management's Estates, Gifts, and Trusts Journal, provides an overview of the constitutional restrictions on state taxation of trusts, discusses the flaws in the New York proposal, and offers strategies for planning under such a regime. The analysis has relevance for the tax structures of more than half the states.

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