The landscape of trusts, estates, and personal income taxation continues to evolve as states grapple with high-earner tax policies, inheritance tax reforms, and estate tax exemptions. Several recent legislative proposals, judicial decisions, and revenue trends highlight the growing complexity of tax law for high-net-worth individuals and their estates. This article provides an overview of the latest state tax trends for high earners, as well as key case law updates affecting trusts, estates, and residency determinations.

High-Earner Tax Trends: Legislative Developments and Policy Proposals

Since October 2024, multiple states have introduced or debated new tax measures aimed at high-income individuals, reflecting a broader national trend in state-level tax policy. Some states are exploring wealth taxes and mark-to-market taxation, while others seek to eliminate estate and inheritance taxes. Below are some of the most notable developments:

• Illinois – A former governor is drafting legislation to implement a millionaire tax targeting high-income residents.

• Maryland – The governor advocated for a new high-earner tax in the state’s annual address.

• Massachusetts – Initial revenue reports from the recently enacted millionaire tax exceeded expectations, generating stronger-than-projected revenues.

• Minnesota – A new bill proposes to gradually phase out the state’s estate tax over the next several years.

• Nebraska – The governor has proposed eliminating the state’s inheritance tax, marking a major shift in tax policy.

• New York – A state senator introduced a mark-to-market tax on billionaires, aiming to tax unrealized capital gains.

• Oregon – Business advocacy groups are pushing for increased estate tax exemptions, citing the need for more favorable estate planning conditions.

• Washington – The outgoing governor proposed a wealth tax, but skepticism from the incoming administration casts doubt on its implementation.

These trends underscore the divide in tax policy, with some states moving toward increased taxation on high earners, while others seek to reduce or eliminate wealth transfer taxes.

Key Case Law Updates in Trusts, Estates, and Personal Income Taxation

In addition to legislative trends, recent court decisions have clarified important tax treatment issues concerning trusts, stock options, residency, and severance payments. Below are the most impactful cases from late 2024 and early 2025.

California – Trusts Entitled to $5.4 Million Tax Refund

In a significant victory for trusts with multistate business interests, a California court ruled that certain trust income derived from partnership business activities should not be fully taxable in California.

• A group of trusts that held partnerships challenged California’s tax treatment of their income from the sale of Century Theaters.

• The court found that because the partnerships were part of a unitary business operating within and outside California, the income should not be fully sourced to California.

• Instead, the business income of the partnership must be apportioned at the partnership level, reducing the taxable portion in California.

• Outcome: The trusts were granted a $5.4 million refund.

Case Reference: Steuer v. California Franchise Tax Board (No. CGC-18-571122, 12/31/2024)

California – Nonresident’s Stock Options and RSUs Taxable in California

A former executive of Monster Beverage Co. contested California’s taxation of nonqualified stock options (NQSOs) and restricted stock units (RSUs) that vested after he moved out of state. The California Office of Tax Appeals (OTA) ruled against the taxpayer, affirming that:

• The NQSOs and RSUs were earned for work performed in California.

• Even though the taxpayer was a Hawaii resident when the stock options vested, the income remained taxable in California under source-based income rules.

• Outcome: The former executive was required to pay California state income tax on the exercised stock options and vested RSUs.

Case Reference: Matter of Hall (Case No. 220911257, 12/13/2024)

New York – Florida Domicile Not Established Despite Residency Changes

A taxpayer couple attempting to establish Florida residency for tax purposes was unsuccessful in a case before the New York State Division of Tax Appeals.

• The couple owned homes in both New York and Florida and began transitioning to full-time Florida residency.

• However, they spent more days in New York, including major holidays, and maintained business connections in the state.

• Although they declared Florida as their domicile, changed their driver’s licenses and voter registrations, and updated legal documents, these steps were insufficient to override their continued presence and ties to New York.

• Outcome: New York successfully asserted that the taxpayers remained domiciled in New York for tax purposes.

Case Reference: In the Matter of the Petition of John J. Hoff and Kathleen Ocorr-Hoff (No. 850209, 11/7/2024)

New York – Severance Pay to Hawaii Resident Taxable in New York

A Hawaii resident challenged New York’s taxation of severance income received from a New York employer, but the court upheld the tax assessment.

• The severance payment was ruled as New York-sourced income, as it stemmed from a taxable termination agreement under state tax law.

• The taxpayer argued that residing in Hawaii at the time of receipt should exempt the income from New York taxation.

• Outcome: The severance income was deemed fully taxable in New York.

Case Reference: In the Matter of Ajanta C. Vora (No. 830987, 11/7/2024)

Conclusion

The latest developments in trusts, estates, and personal income taxation reflect an evolving legal and policy landscape, particularly concerning high-income individuals and estate planning strategies. Key takeaways include:

• State legislative trends indicate growing divergence, with some states proposing wealth taxes and mark-to-market taxation, while others move toward estate and inheritance tax repeals.

• Trust taxation remains complex, as demonstrated by the California case limiting state taxation of unitary partnership income.

• Residency determinations remain a hot issue, with states like New York aggressively challenging taxpayer claims of out-of-state domicile.

• Stock options and severance payments continue to be subject to source-based taxation, often resulting in state tax liability even after relocation.

With states refining their tax policies and courts continuing to issue impactful rulings, high-net-worth individuals, estate planners, and tax professionals must remain proactive in navigating multistate tax obligations. As legislative and judicial trends unfold in 2025, taxpayers should expect ongoing developments in residency rules, wealth taxation, and business income apportionment that could significantly affect tax planning strategies.