Supreme Court hears dispute over whether trust tax items count as income for child support

The North Dakota Supreme Court on appeal heard competing arguments over whether tax-reporting items from grantor and irrevocable trusts may be included as income when calculating child support in Brett Michael Kingstone v. Trissa Renee Tedrow Kingstone.

Appellant counsel J.C. Johnston told the justices the district court erred by adopting figures from a Bismarck CPA'prepared chart (record 270) and treating reported capital gains and other tax items as the client's income. "It's a fiction of reporting the income through the IRS because he is the grantor or the settler of the trusts, and it's required for tax purposes that the tax return be designated this way. But they're not income. It's not income to him," Johnston said.

Johnston said testimony by two witnesses'a local CPA at Brady Martz and a chartered accountant in Florida, Robert Pola'differed, but the district court adopted the local CPA's numbers and ignored Pola's testimony and related exhibits. "The chart that was prepared by Brady Martz is indicating that there's a substantial amount of income that flowed to my client whereby he did not receive a penny of that income," Johnston told the court. She said tax returns and a trial exhibit (a bubble-flow chart) show most assets were held in irrevocable trusts and that distributions to her client were reported as zero.

Responding for the appellee, Robert Will defended the district court's approach and the credibility findings. "That is the base number that was provided by the expert, Tawny Magnus, as to in order to review and establish the child support obligation, and that's what the court utilized, and found her to be credible," Will said, adding the court found the appellant's own evidence was limited and nonspecific.

Justices questioned both sides about what the district court actually adopted and how the court reached its net-income finding. Johnston pointed to findings that the district court concluded the appellant's net monthly income exceeded $25,000 and specifically cited a $121,650 monthly net-income figure (paragraph 15 of the findings). Justice Crothers asked Johnston where the findings explicitly adopted record 270; Johnston pointed to multiple references, including paragraph 15 and later findings.

Both advocates asked the court to consider whether the trial court properly credited one expert over another and whether the tax-reporting mechanics of grantor trusts create a 'reporting fiction'that should be excluded when determining gross income for child-support guidelines. Johnston asked for remand with specific direction that the district court identify what amounts, if any, are attributable income to the appellant. Will argued the district court acted within its fact-finding role and credited Magnus's analysis.

The justices explored factual record limits, including whether trust documents and tax-exhibit details were before the lower court. Johnston said extensive trust and tax materials were provided to the appellee during prenup and divorce proceedings and relied upon testimony by Terry Young (Florida attorney) and Robert Pola. Will countered that Pola had not participated in the creation of earlier trust documents and that differing witness access complicated the appellant's claims.

The appeal centers on how the statute and guideline framework should treat reported tax items that appear on a grantor'trust'affected tax return when the beneficiary did not receive distributions. The transcript shows the district court cited a monthly net-income figure above the guideline 'maximum and used that figure in setting child support.

The court did not issue an immediate decision at argument.