Presenter tells Ways & Means recent U.S. Supreme Court rulings limit Vermont’s ability to tax long‑standing "resident" trusts
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Summary
At a Ways & Means briefing, Mark Langan told lawmakers Vermont can tax trust income only when the trust retains sufficient "nexus" to the state — a rule courts reinforced in recent U.S. Supreme Court guidance — and urged care before asserting long-term claims on out-of-state trusts.
At a Ways & Means committee briefing, Mark Langan, section chair of the Vermont Bar Association’s probate and trust section, told legislators that Vermont’s authority to tax trusts depends on a sufficient connection, or nexus, between the trust and the state.
"You have to have nexus to be able to tax that," Langan said, quoting recent judicial holdings and explaining how courts are narrowing states’ reach when beneficiaries, trustees and assets are largely out of state.
Why it matters: Vermont’s resident‑trust rule can subject trust income to state tax when a contributor was a Vermonter at the time a trust becomes irrevocable, Langan said. That rule is intended to protect in-state revenue, but recordkeeping and shifting connections can make enforcement legally risky and administratively complex.
Langan summarized the statute as it appears in Vermont’s tax code and said the state’s approach resembles rules in Connecticut and New Jersey. He emphasized practical problems when multiple contributors or long-term, out-of-state trustees are involved: "If a trust loses its nexus with Vermont, then maybe Vermont shouldn't be able to tax it anymore," he said.
The presenter referred to recent case law that has constrained state taxing authority. He cited a recent Supreme Court decision in which the court rejected a state tax claim where the only connection was a discretionary beneficiary in the taxing state; the court required a more concrete, ongoing tie before permitting taxation.
Langan pointed to an older high‑court precedent involving tangible property (art in the Frick Museum) to illustrate the principle that movable property located outside the state at death generally does not create a taxable connection.
Committee members asked procedural and technical questions about how a state would determine who contributed to a trust and how investment gains should be attributed when contributions occurred at different times. Representative Higley pressed on the definition of a "resident trust" and the logistics of disaggregating multiple contributors’ records; Langan said the work is largely record‑keeping and uncommon in day‑to‑day practice but can be a litigation point.
What it does not change: Langan made clear Vermont can still tax in‑state real estate and tangible personal property held in a trust; those assets create a direct, taxable connection. He also noted that states often rely on federal rules and IRS audits to inform state determinations.
Next steps: The briefing concluded with members thanking Langan and asking him to return if lawmakers pursue statutory changes. No formal action or vote followed the presentation.
