No.

18-457
================================================================

In The
Supreme Court of the United States
------------------------------------------------------------------

NORTH CAROLINA DEPARTMENT OF REVENUE,

Petitioner,
v.

THE KIMBERLEY RICE KAESTNER

1992 FAMILY TRUST,

Respondent.

------------------------------------------------------------------

On Writ of Certiorari to the

Supreme Court of North Carolina

------------------------------------------------------------------

BRIEF OF AMICUS CURIAE LAW PROFESSORS

IN SUPPORT OF PETITIONER

------------------------------------------------------------------

STEPHEN D. FELDMAN
Counsel of Record
THOMAS H. SEGARS
SCOTTIE FORBES LEE
PREETHA SURESH RINI
ELLIS & WINTERS LLP
4131 Parklake Avenue, Suite 400
Raleigh, NC 27612
(919) 865-7005
[email protected]

================================================================
COCKLE LEGAL BRIEFS (800) 225-6964
WWW.COCKLELEGALBRIEFS.COM
 i

TABLE OF CONTENTS
Page
STATEMENT OF INTEREST OF AMICUS
CURIAE ............................................................ 1
SUMMARY OF ARGUMENT .............................. 2
ARGUMENT ........................................................ 3
I. The history of trusts shows that the trust
was developed to preserve property for a
beneficiary ................................................. 3
A. The predecessor to the modern trust—
called a “use”—facilitated property
transfers in the face of feudal
restrictions........................................... 3
B. The trust developed from the “use” and
had the same core function of
preserving property for a beneficiary .... 5
II. Key attributes of modern trusts confirm
that a beneficiary is the central figure in
the trust relationship ................................ 7
A. A trust cannot exist without a
beneficiary ............................................ 7
B. Only the trust beneficiary holds a
beneficial property interest in the
trust corpus ......................................... 9
C. A trustee’s obligation is to advance the
beneficiary’s interests ......................... 12
D. A trust is not a separate legal entity, but a
relationship created for a beneficiary ...... 14
 ii

TABLE OF CONTENTS—Continued
Page
III. The contacts that a trust’s beneficiary
makes with a state cannot be disregarded
in determining jurisdiction to tax income
on a trust corpus ........................................ 16
A. The holding below misapplies this
Court’s instruction in Quill and
overlooks important characteristics of
trusts ................................................... 17
B. The constituents of a trust may make
“contact” with states ............................ 19
C. The contacts made by the trust’s
beneficiary are the most significant
for the purpose of establishing taxing
jurisdiction .......................................... 20
CONCLUSION..................................................... 24
 iii

TABLE OF AUTHORITIES
Page
CASES
Americold Realty Tr. v. ConAgra Foods, Inc.,
136 S. Ct. 1012 (2016) ................................. 14, 15, 16
Anderson v. Wilson,
289 U.S. 20 (1933) ...................................................14
Blair v. Comm’r,
300 U.S. 5 (1937) ........................................... 9, 10, 21
Kimberley Rice Kaestner 1992 Family Tr.
v. N.C. Dep’t of Revenue,
814 S.E.2d 43 (N.C. 2018) .......................................17
Meinhard v. Salmon,
164 N.E. 545 (N.Y. 1928) .........................................13
Miller Bros. v. Maryland,
347 U.S. 340 (1954) ........................................... 17, 20
Navarro Sav. Ass’n v. Lee,
446 U.S. 458 (1980) ........................................... 22, 23
NLRB v. Amax Coal Co.,
453 U.S. 322 (1981) ........................................... 12, 13
Pennsylvania v. Stewart,
12 A.2d 444 (Pa. 1940),
aff ’d, 312 U.S. 649 (1941) ..........................................9
Quill Corp. v. North Dakota,
504 U.S. 298 (1992) ................................. 17, 18, 20, 23
South Dakota v. Wayfair, Inc.,
138 S. Ct. 2080 (2018) ....................................... 19, 20
 iv

TABLE OF AUTHORITIES—Continued
Page
Stone v. White,
301 U.S. 532 (1937) ........................................... 10, 21
Walden v. Fiore,
571 U.S. 277 (2014) .................................................18

STATUTES
Fed. R. Civ. P. 17(a)(1)(E) ............................................23
Statute of Wills 1540, 32 Hen. 8 c. 1 (Eng.) .................4
Unif. Trust Code § 105(b)(3) .......................................13
Unif. Trust Code § 107 cmt.........................................19
Unif. Trust Code § 202 ................................................14
Unif. Trust Code § 402 ..................................................8
Unif. Trust Code § 704 ..................................................8
Unif. Trust Code § 802 ................................................12
Unif. Trust Code § 814(a) ...........................................13

OTHER AUTHORITIES
Gregory S. Alexander, The Dead Hand and the
Law of Trusts in the Nineteenth Century, 37
Stan. L. Rev. 1189 (1985) ..........................................6
76 Am. Jur. 2d Trusts (2016) .............................. passim
Black’s Law Dictionary (10th ed. 2014) .......................5
George Gleason Bogert & George Taylor Bogert,
The Law of Trusts and Trustees (2d rev. ed.
1993) .................................................................. 12, 22
 v

TABLE OF AUTHORITIES—Continued
Page
Alan R. Bromberg & E. B. Fortson, Selection of a
Trustee; Tax and Other Considerations,
19 Sw. L.J. 523 (1965)................................................8
Ronald Chester, From Here to Eternity? Property
and the Dead Hand (2007)........................................6
90 C.J.S. Trusts (2010) ...................................... 8, 10, 11
Robert T. Danforth, Rethinking the Law of
Creditors’ Rights in Trusts, 53 Hastings L.J.
287 (2002) ................................................................15
Henry Hansmann & Ugo Mattei, Trust Law in
the United States. A Basic Study of Its
Special Contribution, 46 Am. J. Comp. L. Supp.
133 (1998) ................................................ 9, 11, 13, 22
Adam Hofri-Winogradow, The Demand for
Fiduciary Services: Evidence from the Market
in Private Donative Trusts, 68 Hastings L.J.
931 (2017) ................................................................21
John H. Langbein, The Contractarian Basis of
the Law of Trusts, 105 Yale L.J. 625 (1995) .... passim
Alan Newman et al., The Law of Trusts and
Trustees (3d ed. 2010)..............................................10
Howard L. Oleck, Historical Nature of Equity
Jurisprudence, 20 Fordham L. Rev. 23 (1951) ...... 5, 6
Francesco Parisi, Entropy in Property, 50 Am. J.
Comp. L. 595 (2002) ..................................................4
Restatement (Third) of Trusts (Am. Law Inst.
2003) .................................................. 8, 10, 13, 15, 18
 vi

TABLE OF AUTHORITIES—Continued
Page
W. D. Rollinson, Principles of the Law of
Succession to Intestate Property, 11 Notre
Dame L. Rev. 14 (1935) .............................................4
Kent D. Schenkel, Exposing the Hocus Pocus of
Trusts, 45 Akron L. Rev. 63 (2012) ............................6
Kent D. Schenkel, Trust Law and the Title-Split:
A Beneficial Perspective, 78 UMKC L. Rev. 182
(2009) ............................................................... passim
Jeffrey Schoenblum, Strange Bedfellows: The
Federal Constitution, Out-of-State Nongrantor
Accumulation Trusts, and the Complete
Avoidance of State Income Taxation, 67 Vand.
L. Rev. 1945 (2014) ............................................ 19, 20
Helene S. Shapo et al., The Law of Trusts and
Trustees (3d ed. 2012)................................................9
David T. Smith, The Statute of Uses: A Look at
Its Historical Evolution and Demise, 18 Case
W. Res. L. Rev. 40 (1966) ...........................................4
Samuel Williston, The Right to Follow Trust
Property When Confused with Other Property,
2 Harv. L. Rev. 28 (1888) .........................................15
 1

STATEMENT OF INTEREST
OF AMICUS CURIAE1
Amici are law professors who have studied the his-
tory, purpose, and taxation of trusts. Amici teach
courses on the laws governing trusts and estates, tax-
ation, and property, and have published extensive
scholarship on the law of trusts. Amici submit this
brief to show that a beneficiary is and always has been
the central constituent of a trust. As a result, a benefi-
ciary’s residency in a taxing state necessarily creates a
significant relationship between the taxing state and
the trust income that is the object of the tax. Amici
urge the Court to weigh these points in reaching its
decision in this case—a decision likely to have long-
term consequences for the law on trusts.
John V. Orth is the William Rand Kenan Jr. Pro-
fessor of Law at the University of North Carolina
School of Law.
Kent D. Schenkel is a Professor of Law at New
England Law Boston.
Carla Spivack is the Oxford Research Professor at
the Oklahoma City University School of Law.

1
In accordance with Supreme Court Rule 37.6, amici state
that no counsel for a party authored this brief in whole or in part,
and that no person or entity, other than amici and their counsel,
made a monetary contribution intended to fund the preparation
and submission of this brief. All parties have filed letters granting
blanket consent to the filing of amicus briefs.
 2

Danaya C. Wright is the Clarence J. TeSelle En-

dowed Professor at the University of Florida Fredic G.
Levin College of Law.
------------------------------------------------------------------

SUMMARY OF ARGUMENT
The question presented in this appeal is whether
the Due Process Clause prohibits a state from taxing
the income of a trust based on a trust beneficiary’s in-
state residency. The Supreme Court of North Carolina
concluded that the Due Process Clause imposes this
prohibition. That conclusion, however, clashes with the
history, purpose, and established legal treatment of
trusts.
A beneficiary’s in-state residency is a uniquely rel-
evant factor in establishing taxing jurisdiction. A
trust’s three basic constituents—settlor, trustee, and
beneficiary—may make contact with different states.
Among those constituents, however, only a trust’s ben-
eficiary is entitled to trust income. It follows that
contacts with a state made by a trust’s beneficiary bear
the closest relationship to the object of income taxa-
tion: income from the trust corpus.
This brief begins with a discussion of the history
that led to the modern-day trust, focusing on the ben-
eficiary’s essential role in the trust relationship. It
then examines four key attributes of modern-day
trusts that confirm a beneficiary’s central and unique
role in a trust. The brief applies the history and key
attributes to the decision below, concluding that a
 3

beneficiary’s contacts with a state must be a cardinal

consideration in establishing taxing jurisdiction.
------------------------------------------------------------------

ARGUMENT
I. The history of trusts shows that the trust
was developed to preserve property for a
beneficiary.
The Supreme Court of North Carolina concluded
that the residency of a trust beneficiary is insufficient
to determine whether a taxing state’s contacts with the
trust satisfy the Due Process Clause. This conclusion,
however, overlooks the purpose of a trust. A trust is
created to benefit a trust beneficiary.
A look at the history of the law on trusts shows
that the arrangement has always existed for this pur-
pose. Amici urge the Court to consider this history in
assessing the role of a beneficiary’s residency in the
Court’s due-process analysis.

A. The predecessor to the modern trust—

called a “use”—facilitated property trans-
fers in the face of feudal restrictions.
Trust law traces its roots to the Middle Ages, when
feudal lords controlled English lands. John H. Lang-
bein, The Contractarian Basis of the Law of Trusts, 105
Yale L.J. 625, 632 (1995). In exchange for vows of alle-
giance and military service to protect the land, the
lords granted partial rights of use and exploitation to
 4

tenants. Francesco Parisi, Entropy in Property, 50 Am.

J. Comp. L. 595, 599 (2002).
Tenants, however, could not pass these rights from
one generation to the next. Langbein, supra, at 632–
33. This is because the feudal lords restricted who
could own the land. Id. at 632; Parisi, supra, at 599.
These restrictions meant that tenants could not devise
their land rights by will. Kent D. Schenkel, Trust Law
and the Title-Split: A Beneficial Perspective, 78 UMKC
L. Rev. 182, 185 (2009) [hereinafter Schenkel, Trust
Law and the Title-Split]; see also Langbein, supra, at
632–33.
These limitations carried on even after the feudal
system dissolved. Land ownership transferred only by
descent and, until the enactment of the Statute of Wills
in 1540, 32 Hen. 8 c. 1, could not be devised by will to
others. See Langbein, supra, at 632–33; David T. Smith,
The Statute of Uses: A Look at Its Historical Evolution
and Demise, 18 Case W. Res. L. Rev. 40, 60 (1966); cf. W.
D. Rollinson, Principles of the Law of Succession to In-
testate Property, 11 Notre Dame L. Rev. 14, 15 (1935)
(discussing the transmission of land by “descent” and
by “devise”). Resentful of these laws, property owners
looked for a way to facilitate the transfer of their land
to their wives and children. Schenkel, Trust Law and
the Title-Split, supra, at 189; see also Langbein, supra,
at 632–33.
These dynamics gave rise to what was known as a
“use.” Langbein, supra, at 632–33. In a use, a land-
owner transferred the land’s legal title to a person
 5

known as a “feoffee,” who held the title for the use of

the landowner and his family.2 Schenkel, Trust Law
and the Title-Split, supra, at 186. The feoffee held the
land’s legal title, but the living landowner and his fam-
ily retained the land’s economic and personal benefits.
Id. A use therefore defeated the feudal-era restrictions
of property ownership: when the landowner died, his
family retained the land’s benefits, effectuating the
functionality of a will. Id. In this way, uses were cre-
ated to benefit the landowner’s family.

B. The trust developed from the “use” and

had the same core function of preserv-
ing property for a beneficiary.
The evolution and purpose of the use set the stage
for the creation of the modern trust—the relationship
at the heart of this case.
Because English common law did not recognize
the use, disputes about uses were heard in English
courts of equity. Howard L. Oleck, Historical Nature of
Equity Jurisprudence, 20 Fordham L. Rev. 23, 37
(1951). Disputes arose based on the separation be-
tween legal title (which belonged to the feoffee) and the
benefits of that title (which belonged to the landowner
and his family). See Langbein, supra, at 634; Schenkel,
Trust Law and the Title-Split, supra, at 186–87.

2
A “feoffee to uses” is “[a] person to whom land is conveyed
for the use of a third party.” Feoffee to uses, Black’s Law Diction-
ary (10th ed. 2014).
 6

In resolving these disputes, courts of equity by-

passed common-law precedent and provided redress,
such as specific performance, for injuries in circum-
stances where the common-law courts were not
authorized to act. Schenkel, Trust Law and the Title-
Split, supra, at 187; Oleck, supra, at 37–38; see also
Langbein, supra, at 634. In particular, the courts of eq-
uity required the feoffee to follow the landowner’s in-
structions to benefit his family after his death.
Schenkel, Trust Law and the Title-Split, supra, at 187.
English law reasoned that “after the trust creator died,
the property belonged to the living beneficiaries of the
dead creator’s largesse once they came of age.” Kent D.
Schenkel, Exposing the Hocus Pocus of Trusts, 45 Ak-
ron L. Rev. 63, 71 n.31 (2012) (quoting Ronald Chester,
From Here to Eternity? Property and the Dead Hand 47
(2007)).
On this theory—and through the exercise of their
powers—courts of equity strengthened the benefi-
ciary’s interest by treating the “use” as an incorporeal
thing that could be divided. Gregory S. Alexander, The
Dead Hand and the Law of Trusts in the Nineteenth
Century, 37 Stan. L. Rev. 1189, 1197 (1985). Thus, the
beneficiary did not hold an estate in land but instead
held an estate in “use.” Id.
The law on trusts originated from this theory and
these equitable powers. Although modern-day trusts
include complex portfolios with various assets, the
principles that control the trust relationship find their
roots in the history described above. Those principles
empower a trustee to transact with the trust property,
 7

see Langbein, supra, at 637–42, but they do not change

the essential character of a trust: an abstract device
designed to hold, manage, preserve, and distribute
wealth, all for the benefit of the beneficiary.

II. Key attributes of modern trusts confirm

that a beneficiary is the central figure in
the trust relationship.
Having evolved from English courts of equity,
modern trusts possess several key features that bear
on the due-process analysis in this case: (1) the law
does not recognize a trust relationship in the absence
of a beneficiary; (2) a beneficiary holds a property in-
terest in the trust corpus; (3) a trustee’s conduct must
advance the beneficiary’s interest; and (4) a trust is not
a legal entity.
These features confirm that the trust beneficiary
is a focal point of the trust relationship, enjoying
unique rights and interests in the trust’s corpus. Only
the trust beneficiary is entitled to income derived from
the trust corpus. For that reason, the contacts that a
trust’s beneficiary makes with a taxing state must be
leading considerations in determining whether the
state’s taxation of trust income comports with the Due
Process Clause.

A. A trust cannot exist without a beneficiary.

As discussed above, the use was created to aid a
landowner’s family; without the use, the family would
 8

lose the benefit of the land after the landowner’s pass-

ing. See Langbein, supra, at 633. Put another way, the
landowner had no independent reason to convey legal
title to a feoffee other than to ensure that his family
would receive the land’s benefits after his passing. See
id. And the “use” served no benefit to the feoffee, who
was fundamentally a caretaker of the legal title.
Schenkel, Trust Law and the Title-Split, supra, at 186
(describing the feoffee’s role as merely to “follow the
landowner’s instructions with respect to [the land’s]
use and disposition”).
The same is true today. Trusts owe their entire ex-
istence to their beneficiaries, and the law does not even
recognize a trust relationship unless the trust’s terms
provide a beneficiary. Unif. Trust Code § 402 (Unif.
Law Comm’n 2000) (amended 2010) (“A trust is cre-
ated only if . . . the trust has a definite beneficiary
. . . .”); Restatement (Third) of Trusts § 44 (Am. Law
Inst. 2003); 90 C.J.S. Trusts § 4 (2010) (“The existence
of a beneficiary is an indispensable element of an ex-
press trust, and in the absence of a beneficiary, the ef-
fort to create such trust aborts.”).
The absence of a trustee, in contrast, does not jeop-
ardize the law’s recognition of a trust. Restatement
(Third) of Trusts § 31; Alan R. Bromberg & E. B. Fort-
son, Selection of a Trustee; Tax and Other Considera-
tions, 19 Sw. L.J. 523, 524 (1965) (“It is hornbook law
that a trust will not be permitted to fail for want of a
trustee; the courts will supply one if the grantor does
not.”); see also Unif. Trust Code § 704 (providing proce-
dure for filling a vacancy in trusteeship). Nor does the
 9

absence of a settlor endanger the law’s recognition of a

trust relationship. See 76 Am. Jur. 2d Trusts § 3 (2016);
Henry Hansmann & Ugo Mattei, Trust Law in the
United States. A Basic Study of Its Special Contribu-
tion, 46 Am. J. Comp. L. Supp. 133, 134 (1998).
In sum, the existence of a trust is entirely “inci-
dental to and derivative of the purpose of benefiting
the trust beneficiary.” Schenkel, Trust Law and the Ti-
tle-Split, supra, at 183. A trust without a beneficiary is
therefore a legal nullity.

B. Only the trust beneficiary holds a bene-

ficial property interest in the trust cor-
pus.
Because a trust is established to hold property for
a beneficiary, it follows that a beneficiary has a cog-
nizable property interest in the trust corpus.3 See Blair
v. Comm’r, 300 U.S. 5, 14 (1937) (recognizing that the
beneficiary of an inter vivos trust has a vested interest
in the trust—an “estate in and to property” of the
trust); see also Pennsylvania v. Stewart, 12 A.2d 444,
446–47 (Pa. 1940) (noting that “the beneficiary also has
rights in rem, an actual property interest in the sub-
ject-matter of the trust”), aff ’d, 312 U.S. 649 (1941); 3
Helene S. Shapo et al., The Law of Trusts and Trustees

3
Amici acknowledge that some trust-law scholars believe
that a beneficiary’s interest is promissory, not proprietary. See,
e.g., Langbein, supra, at 644 (discussing this debate among trust-
law academics). That view, however, is defeated by the equitable
origins of the trust described above. See id. at 644–47.
 10

§ 183, at 512 (3d ed. 2012) (noting that the beneficiary’s

interest in modern-day trusts has “become increas-
ingly a right in rem and is now substantially equiva-
lent to equitable ownership of the trust res”).
The beneficiary’s property interest is equitable in
nature. Stone v. White, 301 U.S. 532, 537 (1937); see 76
Am. Jur. 2d Trusts § 1; 17 Alan Newman et al., The Law
of Trusts and Trustees § 962, at 19 (3d ed. 2010). It is
also more than a mere right; it is a form of title. See
Blair, 300 U.S. at 13–14 (describing a beneficiary’s in-
terest as a “right, title, and estate in and to property”);
90 C.J.S. Trusts § 265; Schenkel, Trust Law and the Ti-
tle-Split, supra, at 181 n.2.
Beneficiaries can exercise equitable title in im-
portant ways. For example, beneficiaries may enforce
the trust, sue to enjoin a trust breach, and obtain dam-
ages from a breach. Blair, 300 U.S. at 13. A benefi-
ciary’s trust interest—in the absence of a spendthrift
clause or other express restraint—is also freely alien-
able; beneficiaries can freely “transfer a part of [their]
interest as well as the whole.”4 Id. In addition, absent
a spendthrift clause, beneficiaries can use their trust
interest as security for credit, either (1) by expressly
pledging their interest in the trust corpus to creditors

4
A spendthrift clause contains language that protects the
beneficiary’s income and principal interests from the claims of the
beneficiary’s creditors. Restatement (Third) of Trusts § 58 cmt.
d(2). Aimed at protecting beneficiaries who spend in excess of in-
come, a spendthrift clause bars the beneficiary from pledging un-
distributed trust assets as security for a loan or other debts
during the term of the trust.
 11

or (2) by leveraging the interest as a security for credit

by relying on their overall wealth, inclusive of their in-
terest in the trust property, to induce creditors to ex-
tend unsecured credit. Hansmann & Mattei, supra, at
138.
A trustee does not have these rights. This is so
even though the trustee holds the legal title of the
trust corpus. The trustee’s legal title does not permit
the trustee to benefit from the trust corpus. A trustee
therefore cannot use trust assets to satisfy obligations
to the trustee’s creditors. 76 Am. Jur. 2d Trusts § 256
(explaining that “a trustee’s interest in trust property
is not subject to liability for his or her private, as dis-
tinguished from his or her official, debts and obliga-
tions”); 90 C.J.S. Trusts § 260 (“A fundamental tenet of
trust law is the protection of the trust estate from a
trustee’s personal creditors.”). A settlor also does not
have these rights. Unless expressly allowed by statute
in the jurisdiction, a settlor’s creditors—like a trustee’s
creditors—cannot reach trust property (as long as the
settlor is not also a beneficiary). Hansmann & Mattei,
supra, at 139.
Only the beneficiary holds equitable title to the
trust corpus—title that affords the beneficiary benefits
unavailable to the settlor and the trustee. This fact fur-
ther reinforces the unique relationship between a trust
and its beneficiary.
 12

C. A trustee’s obligation is to advance the

beneficiary’s interests.
A beneficiary’s central role in a trust relationship
is also highlighted by the nature of the trustee’s obli-
gations.
As discussed above, English courts of equity fash-
ioned remedies that recognized a beneficiary’s cogniza-
ble interest in trust property. Schenkel, Trust Law and
the Title-Split, supra, at 186–87. The feoffee’s duty was
to hold and manage legal title to that property con-
sistent with the settlor’s instructions. See id. To protect
the beneficiary’s interest, courts of equity stepped in if
a feoffee breached that duty. Id. at 187.
A trustee’s power to manage a modern trust’s as-
sets is no different: it is bound by a fiduciary duty to
the trust beneficiaries. Langbein, supra, at 640–42. In
other words, the laws that once restricted a feoffee’s
conduct evolved into the modern “law of fiduciary ad-
ministration.” Id. at 640. A trustee’s core duty is to dis-
play “complete loyalty to the interests of the
beneficiary” and to exclude “all selfish interest and all
consideration of the interests of third persons.” 11
George Gleason Bogert & George Taylor Bogert, The
Law of Trusts and Trustees § 543, at 217 (2d rev. ed.
1993); see also Unif. Trust Code § 802 (“A trustee shall
administer the trust solely in the interests of the ben-
eficiaries.”). This Court itself has described a trustee
as “a fiduciary owing undivided loyalty to the interest
of the beneficiaries in administering the trust,” NLRB
v. Amax Coal Co., 453 U.S. 322, 327–28 (1981), and has
 13

emphasized that the rule of undivided loyalty “must be

enforced with ‘uncompromising rigidity,’ ” id. at 330
(quoting Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y.
1928)).5
The duty of loyalty is not the only duty that a trus-
tee owes to a beneficiary. A trustee also owes each ben-
eficiary a duty to exercise “reasonable care, skill, and
caution” in administering the trust “as a prudent per-
son would, in light of the purposes, terms and other
circumstances of the trust.” Restatement (Third) of
Trusts § 77(1)–(2). The beneficiary can sue to enforce
the trustee’s obligation to perform those duties. See
Hansmann & Mattei, supra, at 134.
A trustee can even be removed from the trust re-
lationship under certain circumstances, including by a
beneficiary. See Restatement (Third) of Trusts § 37
cmt. b (noting that the terms of the trust may author-
ize a beneficiary to remove the trustee). A court has
discretion to remove a trustee for proper cause. Id. cmt.
d (“A court may remove a trustee whose continuation
5
These duties are the same even where the terms of a trust
provide the trustee with “absolute” or “sole” discretion over the
trust. Because trusts are solely for the benefit of beneficiaries,
terms describing a trustee’s discretion are not interpreted liter-
ally under the law of trusts. Unif. Trust Code § 814(a) (noting that
the breadth of discretion granted to the trustee in the terms of the
trust do not alter a trustee’s duty to act for the interests of the
beneficiaries); Restatement (Third) of Trusts § 50 cmt. c (explain-
ing that “words such as ‘absolute’ or ‘unlimited’ or ‘sole and un-
controlled’ are not interpreted literally”); see also Unif. Trust
Code § 105(b)(3) (noting that the terms of a trust cannot evade
“the requirement that a trust and its terms be for the benefit of
its beneficiaries”).
 14

in that role would be detrimental to the interests of the

beneficiaries.”). A beneficiary, on the other hand, can-
not be removed because to do so would defeat the pur-
pose of the trust. See supra pp. 7–8.
The takeaway from these points is this: a trustee
holds legal title to trust property, but does so subject to
the possibility of being removed and exclusively “to fa-
cilitate the beneficiaries’ enjoyment.” Langbein, supra,
at 655 (emphasis added).

D. A trust is not a separate legal entity, but

a relationship created for a beneficiary.
The principles laid out above—that a trust fails for
want of a beneficiary, that the beneficiary has a cog-
nizable interest in the trust corpus, and that the trus-
tee’s obligations run to the beneficiary—provide the
framework for a final and significant tenet of trust law:
a trust is not an entity at all, but a relationship to safe-
guard property for a beneficiary. Americold Realty Tr.
v. ConAgra Foods, Inc., 136 S. Ct. 1012, 1016 (2016)
(“Traditionally, a trust was not considered a distinct le-
gal entity . . . .”); Anderson v. Wilson, 289 U.S. 20, 27
(1933) (“[T]he trust is an abstraction . . . the law has
seen fit to deal with this abstraction for income tax
purposes as a separate existence . . . .”); 76 Am. Jur. 2d
Trusts § 2 (“A trust is not a legal entity.”); see also Unif.
Trust Code § 202 (providing for jurisdiction only over
the trustee and beneficiary).
The abstract nature of a trust has notable conse-
quences. For example, a trust cannot be sued.
 15

Americold Realty Tr., 136 S. Ct. at 1016; 76 Am. Jur. 2d

Trusts § 2. Instead, a lawsuit involving a trust is filed
against the trustee in a representative capacity. See
Americold Realty Tr., 136 S. Ct. at 1016; Restatement
(Third) of Trusts § 105.
Similarly, a trust cannot own property. See 76 Am.
Jur. 2d Trusts § 2. Although a trust holds property, it
does not own the property. See Restatement (Third) of
Trusts § 40. The trustee holds legal title to the prop-
erty in a fiduciary capacity. See Robert T. Danforth, Re-
thinking the Law of Creditors’ Rights in Trusts, 53
Hastings L.J. 287, 290 (2002) (“[A]lthough the trustee
is strictly speaking the ‘owner’ of the trust assets, the
trustee owns those assets not for the trustee’s own ben-
efit, but for the benefit of the beneficiaries, for whom
the trustee is a fiduciary.”); Samuel Williston, The
Right to Follow Trust Property When Confused with
Other Property, 2 Harv. L. Rev. 28, 28 (1888) (noting
that term “trustee” indicates “any one holding money
or property in a fiduciary capacity”). The beneficiary,
on the other hand, holds equitable title in the property.
Supra pp. 10–11.
A trust also cannot enter into contracts. 76 Am.
Jur. 2d Trusts § 2. Unlike a corporation, a trust cannot
bind itself because it is not a legal entity. See id. In-
stead, the trustee, acting in a representative capacity,
can enter into contracts in the course of administering
the trust. See Restatement (Third) of Trusts § 105
cmt. c.
 16

In sum, the law does not treat a trust as a legal

entity, and a trust does not have any powers that legal
entities traditionally have. A trust is something differ-
ent: an arrangement among constituents that is
marked by a fiduciary relationship between the trustee
and the trust beneficiaries. Americold Realty Tr., 136
S. Ct. at 1016; 76 Am. Jur. 2d Trusts § 2.

III. The contacts that a trust’s beneficiary

makes with a state cannot be disregarded in
determining jurisdiction to tax income on a
trust corpus.
In view of the historical purpose and legal treat-
ment of trusts, a beneficiary enjoys unique rights to in-
come on a trust’s corpus. Because of those unique
rights, a beneficiary’s contacts with a state are im-
portant, if not dispositive, for purposes of determining
jurisdiction to tax income on a trust’s corpus. The Su-
preme Court of North Carolina erred in concluding
otherwise.
This section first examines the parts of the holding
below that overlook the significance of a beneficiary’s
contacts in the taxing-jurisdiction analysis. It then dis-
cusses the potential contacts with one or more states
that the constituents of a trust may have. Finally, it
explains why a beneficiary’s contacts—more so than
the other constituents of the trust—are of the nature
and quality that matter for taxing jurisdiction.
 17

A. The holding below misapplies this

Court’s instruction in Quill and over-
looks important characteristics of trusts.
The holding below depends on this Court’s instruc-
tion that due process requires “some definite link,
some minimum connection, between a state and the
person, property or transaction it seeks to tax.” Quill
Corp. v. North Dakota, 504 U.S. 298, 306 (1992) (quot-
ing Miller Bros. v. Maryland, 347 U.S. 340, 344–45
(1954)).
The Supreme Court of North Carolina misapplied
this instruction. It held that the beneficiaries’ contacts
with North Carolina, which stem from residency in
North Carolina, were insufficient under the analysis.
Kimberley Rice Kaestner 1992 Family Tr. v. N.C. Dep’t
of Revenue, 814 S.E.2d 43, 51 (N.C. 2018). In its reason-
ing, however, the court below never examined the na-
ture or quality of those contacts—an examination that
Quill demands. Quill, 504 U.S. at 312 (“[A]t the most
general level, the due process nexus analysis requires
that we ask whether an individual’s connections with
a State are substantial enough to legitimate the
State’s exercise of power over him.”).
Instead, the decision below opined that trusts and
their beneficiaries “have legally separate, taxable ex-
istences.” Kaestner, 814 S.E.2d at 51. The court then
reasoned that the trust’s “link[s]” or “minimum con-
nection[s]” to the state for taxing jurisdiction were also
separate from those of the beneficiaries. Id. at 49 (quot-
ing Quill, 504 at 306). The majority relied on this
 18

Court’s holding in Walden v. Fiore, 571 U.S. 277 (2014),

which concluded that “unilateral activity of another
party or a third person is not an appropriate consider-
ation when determining whether a defendant has suf-
ficient contacts with a forum State.” Kaestner, 814
S.E.2d at 49 (quoting Walden, 571 U.S. at 284).
This reasoning reveals a misunderstanding of the
nature of trusts, sidestepping at least three important
features of the trust relationship.
First, a beneficiary is no “third person” or stranger
to a trust. Id. (quoting Walden, 571 U.S. at 284). A ben-
eficiary is a uniquely important constituent of the trust
relationship—a legal requisite to the trust’s existence.
See Restatement (Third) of Trusts § 44 (“A trust is not
created . . . unless the terms of the trust provide a ben-
eficiary . . . .”).
Second, given the fiduciary obligations owed to a
beneficiary, a trust’s relationship with its beneficiary is
hardly a product of the beneficiary’s “unilateral activ-
ity.” Walden, 571 U.S. at 286, 291.
Third, although a particular trust may have a sep-
arate “taxable existence” for some purposes, many do
not, and trusts are not distinct legal entities. See supra
pp. 7–9, 14. The court’s focus on the trust’s “separate
existence” is precisely the sort of overly formalistic
analysis that this Court has rejected. Quill, 504 U.S. at
307 (“[W]e have abandoned more formalistic tests that
focused on a defendant’s ‘presence’ within a State in
favor of a more flexible inquiry into whether a defend-
ant’s contacts with the forum made it reasonable . . . .”);
 19

see also South Dakota v. Wayfair, Inc., 138 S. Ct. 2080,

2093 (2018) (reaffirming “[t]he reasons given in Quill
for rejecting the physical presence rule for due process
purposes”). It also reflects a misunderstanding of the
title-split function of trusts, which ultimately are mere
relationships among people. See Schenkel, Trust Law
and the Title-Split, supra, at 181 n.2; supra pp. 7–9,
14–16.
Had the court below examined the nature and
quality of the beneficiaries’ contacts with North Caro-
lina for jurisdictional purposes, it could not have disre-
garded those contacts.

B. The constituents of a trust may make

“contact” with states.
A trust is not a legal entity. See supra pp. 8–11, 14.
A trust therefore makes contact with a state through
constituents of the trust relationship.
Each of these constituents—settlor, trustee, and
beneficiary—may have contact with one or more states.
See Jeffrey Schoenblum, Strange Bedfellows: The Fed-
eral Constitution, Out-of-State Nongrantor Accumula-
tion Trusts, and the Complete Avoidance of State
Income Taxation, 67 Vand. L. Rev. 1945, 1954 (2014).
In addition, the constituents of the trust relation-
ship have contact with the state under whose law the
trust was organized. See Unif. Trust Code § 107 cmt.
(noting that the Uniform Trust Code “allows a settlor
to select the law that will govern the meaning and
 20

effect of the terms of the trust,” even if the jurisdiction

selected has no other connection to the trust).
In these ways, the constituents of a trust may have
contacts with more than one state. Schoenblum, supra,
at 1957. For instance, those constituents may have con-
tacts with the state where the settlor resides, a second
state where the trust is administered, and a third state
where the beneficiary resides. See id. at 1954.
One constituent’s contacts, however, touch a state
in a particularly significant respect for purposes of es-
tablishing taxing jurisdiction.

C. The contacts made by the trust’s bene-

ficiary are the most significant for the
purpose of establishing taxing jurisdic-
tion.
Quill clarifies that the “link” or “connection” with
a state that matters for establishing taxing jurisdic-
tion is a link or connection with “the person, property
or transaction [the state] seeks to tax.” 504 U.S. at 306;
see also Wayfair, 138 S. Ct. at 2093 (stating the due-
process requirement that there be “some definite link,
some minimum connection, between a state and the
person, property or transaction it seeks to tax” (quoting
Miller Bros., 347 U.S. at 344–45)).
In taxing a trust, a state seeks to tax no “person,”
but rather “property”—specifically, income on a corpus.
Of the potential contacts that the constituents of a
trust may make with a state, contacts made by the
 21

beneficiary are the most closely tied to income from the

corpus—the object of the tax. This close tie to the object
of the tax distinguishes the nature and quality of the
beneficiary’s contacts.
Unlike the other constituents of the trust relation-
ship, only a beneficiary holds a beneficial property in-
terest in the trust corpus. See Blair, 300 U.S. at 14.
Indeed, “[t]rusts exist because of what they can do for
the trust beneficiaries.” Schenkel, Trust Law and the
Title-Split, supra, at 183.
In fact, this Court’s decision in Stone v. White spe-
cifically recognized a beneficiary’s interests in trust in-
come. See Stone, 301 U.S. at 534. Stone resolved a
dispute among trustees, a beneficiary, and a taxing au-
thority over the appropriate tax on trust income. See
id. In resolving that dispute, this Court observed that,
although the trustee and beneficiary were “distinct
tax-paying entities, . . . it was the beneficiary’s money
which paid the tax and it is her money” that the trus-
tees sought to have returned. Id. at 535 (emphasis
added). Stated differently, when a tax is imposed on
trust income, “only the equitable owner of the fund
[that is, the beneficiary] is ultimately burdened.” Id. at
538.
Contacts made by a trust’s non-beneficiary settlor
or trustee, by contrast, have a more attenuated rela-
tionship to the object of taxation.
A non-beneficiary settlor leaves the picture once
trust assets have been transferred and retains no right
or interest in the corpus. See Adam Hofri-Winogradow,
 22

The Demand for Fiduciary Services: Evidence from the

Market in Private Donative Trusts, 68 Hastings L.J.
931, 941 (2017) (explaining that once the trust prop-
erty is held by the trustee, the settlor “steps out of the
picture” and “no longer has any powers over either the
trustee or the trust property”); see also Hansmann &
Mattei, supra, at 144; supra pp. 8–9.
A trustee holds legal title, but serves as a fiduciary
to administer the trust to advance the beneficiary’s in-
terest. See 76 Am. Jur. 2d Trusts §§ 334, 352; Bogert &
Bogert, supra, § 543, at 217–18; supra pp. 9–13. As a
fiduciary, a trustee cannot claim any equitable prop-
erty interest in the corpus. See Navarro Sav. Ass’n v.
Lee, 446 U.S. 458, 463 (1980) (noting that beneficiar-
ies—as opposed to the trustee—have an equitable in-
terest in the trust); Schenkel, Trust Law and the Title-
Split, supra, at 181 n.2 (stating that the beneficiary
holds the equitable title to the property while the trus-
tee holds only legal title). Nor can the trustee receive
any of the income generated by the trust. See Schenkel,
Trust Law and the Title-Split, supra, at 181 n.2.
A trustee’s connection to a state, moreover, is
merely fortuitous. A particular trustee is imperma-
nent, subject to being removed and replaced by a court
or a beneficiary. See supra pp. 8, 13–14. Thus, the trus-
tee’s contacts to a particular state are impermanent as
well, subject to being changed along with the particu-
lar trustee. See supra pp. 13–14. A beneficiary’s con-
nection to the trust, on the other hand, is permanent
because the beneficiary cannot be removed from the
trust relationship. See supra pp. 7–9, 13.
 23

Although the contacts made by a settlor or trustee

may be significant for some purposes, they are not the
most significant for the purpose that matters here: the
object of a state’s tax. A trustee’s contacts may be sig-
nificant, for example, in determining who may sue on
behalf of the trust. See Fed. R. Civ. P. 17(a)(1)(E) (iden-
tifying trustee as real party in interest); Navarro, 446
U.S. at 462 (holding that “trustees are real parties in
interest for procedural purposes”). This rule makes
sense in light of the trustee’s duty to act as a fiduciary
and to transact with assets. See supra pp. 12–13. Those
contacts, however, bear a comparatively distant rela-
tionship to the object of taxation.
Nor does the law of the state where the trust was
originally formed have any meaningful relationship to
the object of taxation. No individual in the state where
a trust is formed enjoys the benefits of the income gen-
erated by the trust—unless the beneficiary also lives
in that state.
A beneficiary has the closest tie to income on a
trust corpus, the object of a state’s tax. For that reason,
a beneficiary’s contacts with a state—most often, that
beneficiary’s state of residence—are the most mean-
ingful contacts under Quill’s due-process analysis.
These contacts may be dispositive on the question of
taxing jurisdiction. In any case, they cannot be disre-
garded.
------------------------------------------------------------------
 24

CONCLUSION
For the foregoing reasons, the decision of the
Supreme Court of North Carolina should be reversed.
Respectfully submitted,
STEPHEN D. FELDMAN
Counsel of Record
THOMAS H. SEGARS
SCOTTIE FORBES LEE
PREETHA SURESH RINI
ELLIS & WINTERS LLP
4131 Parklake Avenue, Suite 400
Raleigh, NC 27612
(919) 865-7005
[email protected]

February 28, 2019