Experts in MN taxation, MN trust and estate law, and trust migration and decanting discuss possible outcomes from the fielding decision
On August 27, 2018, Alliance Trust Company of Nevada hosted a panel discussion at Seven Steakhouse in downtown Minneapolis. Attendees included Minnesota tax and trust law professionals from prominent firms throughout the state of Minnesota.
Alliance Trust Company of Nevada put together an outstanding panel to discuss possible impacts from the Fielding decision including one of the Faegre Baker Daniels attorneys that represented Fielding, an expert in MN taxation that assisted in drafting the law at issue, and an expert in trust migration and trust decanting.
Caitlin was an integral part of the Fielding legal team. Caitlin carries vast experience in complex trust and estate transactional and litigation matters.
Caitlin started the conversation by explaining the background of the Fielding Case.
Case insights from Caitlin
- The Fielding decision will likely impact the wealth management industry in Minnesota.
- Loss of fee income could lead to loss of tax revenue in the state, so a solution is in Minnesota’s best interest.
- If you’re considering following in Fielding’s footsteps here are some things you need to consider:
- Is there enough money at stake to make it worth filing claims for a refund?
- What are the connections to Minnesota among the trust’s stakeholders?
- How do your facts differ from the Fielding case?
- In the Fielding case, the taxpayer did not receive enough benefit from the state to justify taxation.
Bill Lunka, Director at SALT Partners
Bill is an esteemed Minnesota taxation expert bringing four decades of state and local tax experience (including 29 years with the MN Dept. of Revenue) to the discussion.
Bill discussed his views on how the Minnesota Revenue and Legislature might react to the Fielding decision. He noted that the uncertain political landscape in the state makes it challenging to predict how the law might be changed.
Case insights from Bill
- Trusts holding real property in Minnesota will likely be subject to taxation because they receive protection benefits from the state.
- In light of the Fielding decision, the Minnesota government has four options:
- Do nothing.
- Go back to the pre-1995 law.
- See what other states are doing with the definition of a resident trust to resolve
the defects identified by the Minnesota Supreme Court in the definition of a “resident trust.” Those problems include:
- The Court found that using the residence of the grantor as the basis for the determination of the residency of the trust, a separate legal entity, was invalid.
- Determining the residency of a trust in later tax years based on an event in a prior tax year (i.e., when the trust became irrevocable) was not valid under the Due Process Clause.
- Make sure the state taxes appropriately according to income earned and benefits enjoyed.
- Relitigating similar cases to Fielding would be an ineffective strategy for the Department of Revenue.
The most likely option for Minnesota is to see what other states are doing. A possible definition of a resident trust that Minnesota could follow is California’s definition of a resident trust.
- Existing Minnesota trusts could benefit from filing their taxes under protest as was done in the Fielding case.
- Ultimately, practitioners need to have their clients plan and do so conservatively.
Alliance is an expert in both Nevada and California trust laws, trust migration, as well as trust decanting. Nevada is one of the fastest-growing trust jurisdictions because of industry-leading tax benefits and asset protection laws. Learn more about Nevada’s favorable tax laws here.
Case insights from Alliance
- Alliance explained the California Model and the implications a similar model could have on the taxation of Minnesota trusts.
- The state of Nevada has worked hard to make its trust laws flexible to handle different situations including dynasty trusts, directed trusts, and more.
- Trust structures need time, and there need to be additional motives, such as a more comprehensive review of the estate plan or asset protection.
- Decisions motivated by taxation will catch the eye of the tax authorities.
Cases such as Fielding v. Commissioner often make grantors and trustees reevaluate their trust protections. Decanting your trust may be the best option to ensure its operating in the most beneficial way possible.
Alliance Trust Company is a trust migration and decanting expert located in Nevada. With some of the most favorable tax and protection laws in the world, Nevada is a highly advantageous situs to administer your trust.
The Alliance team is ready to help you ensure your assets are protected in every possible way.