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Resident Trusts
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The definition of a resident trust depends on the date the trust becomes irrevocable or is first administered in Minnesota. (See Minnesota Statute 290.01, subdivision 7b)
- After December 31, 1995: A trust, except a grantor type trust, that meets one of the following criteria:
- Created by a will of a decedent, who at their death was a Minnesota resident
- Is irrevocable, and at the time it became irrevocable, the grantor was a Minnesota resident
- Before January 1, 1996: A trust, except a grantor type trust, administered in Minnesota, meeting two of the following three criteria:
- The majority of the discretionary investment decisions are made in Minnesota
- The majority of the discretionary distribution decisions are made in Minnesota
- The trust’s official books and records are kept in Minnesota
Minnesota taxes resident trusts on all their income or gains from intangible property, such as stocks and bonds.
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A trust must have minimum connections to Minnesota to be taxed as a resident trust.
Relevant connections that Minnesota considers include but are not limited to:
- The residency of the trustees, fiduciaries, protectors, advisors and custodians
- The location of the trust's tangible and intangible assets
- The location of the administration of the trust (see Trust Administration)
- The laws made applicable to the trust by the governing trust documents or the laws of Minnesota
- The residency of the beneficiaries and whether they have some degree of possession, control, or enjoyment of the trust property
- The domicile of the grantor, settlor, or testator
- Whether and where the trust was probated
- Whether Minnesota's courts have a continuing supervisory or other existing relationship with the trust
Whether a trust has sufficient minimum connections depends on the facts and circumstances of the situation.
Trust Administration
Administration of the trust includes, but is not limited to, investment of trust assets, distribution of trust assets, record keeping, preparation of tax forms, undertaking of other administrative services, fiduciary functions, and the conduct of trust business, litigation, and administrative proceedings.
Complete and enclose with your Form M2 return Form M2RT, Resident Trust Questionnaire if your trust meets the statutory definition of a resident trust, but you believe your trust may not have sufficient minimum connections to Minnesota to be taxed as a resident trust.
In 2018, the Minnesota Supreme Court ruled in Fielding v. Commissioner of Revenue that a trust may be taxed as a resident “if (1) there is a ‘minimum connection’ between the state and the person, property or transaction subject to tax, and (2) the income subject to the tax is rationally related to the benefits conferred on the taxpayer by the State.”
The Minnesota resident trust statute is presumed to be constitutional. In the Fielding case, the Minnesota Supreme Court determined that the statute was unconstitutional as applied to the trusts involved in Fielding because the Court found the trusts did not have sufficient minimum connections to Minnesota.
The Fielding case dealt with trusts created during the grantor's life (inter vivos trusts), not trusts created upon the death of the grantor (testamentary trusts).
If your trust meets the definition of a resident trust, but you believe you may not have sufficient minimum connections to Minnesota to be taxed as a resident trust, complete the questionnaire in the M2 instructions and provide with your filed return.
