The opinion
430
Argued and submitted May 6, judgment of Tax Court affirmed July 29, 2021
ESTATE OF HELENE J. EVANS,
Plaintiff-Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant-Respondent.
(TC 5335) (SC S067899)
492 P3d 47
The estate of a deceased Oregon resident who, during her lifetime, had been
the sole income beneficiary of a Montana trust that had been created under her
husband’s will upon his death, challenged the Department of Revenue’s inclusion
of the trust’s principal assets in the decedent’s taxable estate in Oregon, arguing
that Oregon’s taxation of those assets violated the Due Process Clause of the
Fourteenth Amendment to the United States Constitution. The decedent’s estate
argued that, because the decedent had not had any control over the management
or disposition of the assets of the Montana trust, Oregon had not obtained the
required “minimum connection” to those assets by virtue of its decedent resident’s
status as the trust’s beneficiary. It also argued that that due process issue was
not resolved by the facts that (1) the decedent’s interest in the trust assets had
been designated as “Qualified Terminable Interest Property” (QTIP) and thus
was part of the decedent’s estate for federal tax purposes; and (2) Oregon uses
the value of an Oregon decedent’s federal estate as the value of his or her Oregon
estate. When the Tax Court rejected that due process argument and affirmed the
department’s decision, the estate appealed. Held: Whether or not she had control
over the trust assets, the decedent had sufficient enjoyment of the assets during
her lifetime that the assets could not dissociated from her, meaning that, through
the decedent, who had resided in Oregon, Oregon had the minimum connection
to the trust assets that due process requires before Oregon may tax the assets.
The judgment of the Tax Court is affirmed.
En Banc
On appeal from the Oregon Tax Court.*
Timothy R. Volpert, Tim Volpert PC, Portland, argued
the cause and filed the briefs for appellant. Also on the briefs
was Carol Vogt Lavine, Carol Vogt Lavine LLC, Milwaukie.
Peenesh Shah, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent. Also
______________
* Unpublished decision issued May 28, 2020.
Cite as 368 Or 430 (2021) 431
on the brief were Ellen F. Rosenblum, Attorney General,
Benjamin Gutman, Solicitor General.
FLYNN, J.
The judgment of the Tax Court is affirmed.
432 Estate of Evans v. Dept. of Rev.
FLYNN, J.
This case reaches us on direct appeal from a deci-
sion of the Oregon Tax Court. The estate of Helene Evans, a
deceased Oregon resident, challenges the Tax Court’s deter-
mination that the Department of Revenue lawfully included
in Evans’s taxable Oregon estate the principal assets of a
Montana trust, of which Evans had been the income ben-
eficiary. Although Evans had a right to receive—and had
received—income generated by those assets during her
lifetime and potentially had the right to tap the assets
themselves, the estate (plaintiff) asserts that she had not
owned and had had no control over the assets. Under those
circumstances, plaintiff argues, Oregon did not have the
kind of connection to the trust assets that the Due Process
Clause of the Fourteenth Amendment to the United States
Constitution requires for a state to impose a tax on a person,
property, or transaction. We conclude that Oregon’s imposi-
tion of its estate tax on the trust assets in this case comports
with the requirements of due process. We, therefore, affirm
the judgment of the Tax Court.
BACKGROUND
At the time of her death, Helene Evans was a life-
time beneficiary of a trust (the Gillam trust) that had been
created upon the death of her husband, Donald Gillam.
After Evans herself died in 2015, having lived in Oregon
since 2012 when the trust was created, the present dispute
arose over whether Oregon can enforce its statutory require-
ment that the value of the assets that were held in the trust
must be included in Evans’s taxable estate. Because that
tax arises from the intersection of Oregon and federal estate
tax law, we briefly describe the applicable provisions.
Under federal estate tax law, there can be no mari-
tal deduction for property passing from the decedent to his or
her spouse when what is passed to the spouse is a mere “ter-
minable interest” in the property, which would include an
income interest or other interest in property held in a trust
that terminates upon the spouse’s death. 20 USC § 2056(b)(1).
The Internal Revenue Code provides an exception to that
rule if the property is “Qualified Terminable Interest
Property” (QTIP), as defined at 26 USC § 2056(b)(7). Under
Cite as 368 Or 430 (2021) 433
that provision, a terminable interest passing to a decedent’s
spouse constitutes QTIP if three conditions are met: (1) the
surviving spouse must be entitled to all the income from the
property for life; (2) no person can have a power to direct
any part of the property to any person other than the sur-
viving spouse; and (3) the decedent’s executor has made an
election to designate the property as QTIP. Such an election
allows the property to escape taxation as part of the dece-
dent’s estate, but any property deducted from the decedent’s
estate as QTIP must, upon the surviving spouse’s death,
be included in, and taxed as part of, the spouse’s estate. 26
USC § 2044.1
Thus, for federal tax purposes, property that was
designated as QTIP and thus excluded from a decedent’s
estate under 26 USC § 2056(b)(7) must be included in the
surviving spouse’s federal estate upon his or her death. 26
USC § 2044. And Oregon law provides that, for purposes
of Oregon taxes, a resident decedent’s taxable estate is the
same as his or her federal taxable estate, taking into account
any Oregon modifications. ORS 118.010(3).
Returning to the facts of this case, Gillam’s will had
provided that, upon his death, certain of his assets—including
stocks, bonds, and similar intangible property held in
Montana banks and investment firms—would be placed
in a testamentary trust established under Montana law,
which would be administered by a single trustee (his son,
a Montana resident). The will also provided that Evans and
other designated persons would receive the income gener-
ated by the trust, along with such portions of the principal
as the trustee, in his sole discretion, deemed appropriate
after consulting with Evans about the needs of the various
beneficiaries; that Gillam’s executor could elect to qual-
ify all or part of the trust for the marital deduction from
1
A prominent treatise on tax law explains that
“[t]he principal consequence of the QTIP election is that the property remain-
ing at the surviving spouse’s death must be included in the spouse’s gross
estate. Sections 2056(b)(5) and (7) essentially allow the marital deduction on
the condition that the property be subject to gift or estate tax when it passes
from the spouse to someone else.”
Boris Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts
§ 129.3 (3d ed 2019) (emphases added).
434 Estate of Evans v. Dept. of Rev.
federal or state estate taxes; and that, upon Evans’s death,
the remaining assets of the trust would be divided among
Gillam’s children.
Gillam died in 2012 as a resident of Montana, a few
weeks after Evans had moved from that state to Oregon.
Upon Gillam’s death, his executor transferred the intangi-
ble property that had been designated in Gillam’s will to
the trust. Wishing to make the election that would qual-
ify the trust for the federal estate tax marital deduction, as
contemplated in the will, the executor petitioned a Montana
court to reform the will and modify the trust in a way that
would support that election.
To allow the election that Gillam’s executor sought,
the Montana court agreed to reform Gillam’s will and mod-
ify the Gillam Trust so that the trust property met the
statutory requirements for designation as QTIP. Under the
modifications that were approved, the trustee was required
to pay all of the net income from the trust to Evans, as well
as “such amounts from the principal” as the trustee deemed
necessary for Evans’s “health, education, maintenance,
or support” in her “accustomed manner of living,” during
Evans’s lifetime. The trustee was prohibited from distribut-
ing either trust income or principal to any person other than
Evans during her lifetime; but, upon Evans’s death, he was
to distribute the principal to Gillam’s children. And upon
Evans’s death, the trustee was to pay, out of the trust prin-
cipal, the “federal and state death taxes * * * imposed by any
jurisdiction by reason of [Evans’s] death and with respect to
any property included in th[e] trust.”
Once the trust had been modified, Gillam’s execu-
tor elected to designate the trust property as QTIP, and the
property was excluded from Gillam’s estate for purposes of
the federal estate tax. The QTIP designation had no effect
on taxes paid to the state of Montana, because Montana
does not have an estate tax.
During Evans’s life, there was one significant change
with respect to her interest in the trust. At some point, a
dispute arose between Evans and the trustee about how
much of the trust principal should be distributed to Evans,
Cite as 368 Or 430 (2021) 435
in addition to the trust income, to maintain her accus-
tomed manner of living. Although, under the terms of the
trust, the amount of any such distributions from principal
was within the trustee’s sole discretion, Evans had a right
under Montana law to require the trustee to make the trust
property productive of income or convert it to productive
property, if the amounts that the trustee distributed to her
were “insufficient to provide [her] with the beneficial enjoy-
ment required to obtain the marital deduction.” Montana
Code Annotated (MCA) § 72-34-445. In 2014, Evans and
the trustee entered into a settlement agreement whereby
Evans released her rights under MCA § 72-34-445, along
with her right under the trust terms to receive distributions
from principal to maintain her accustomed manner of liv-
ing (as deemed necessary by the trustee), in exchange for a
single lump sum payment of $750,000 from the trust princi-
pal and stipulated monthly payments of $10,833.33 for her
lifetime.2
When Evans herself died in Oregon in 2015, plain-
tiff initially filed an Oregon estate tax return that included
the value of the assets that were held in the trust. In doing
so, plaintiff was following the requirement of ORS 118.010(3)
that a decedent’s taxable estate is generally the same as his
or her federal taxable estate.
Later, after paying the total tax liability on the
estate as set out in the initial estate tax return, plaintiff
sought to revise the return to exclude the value of the prin-
cipal assets of the Gillam Trust and requested a refund of
the tax that had been paid on those trust assets. Plaintiff
argued that, regardless of what ORS 118.010(3) and other
Oregon tax statutes might require, imposing Oregon’s estate
tax on the assets of the trust, when Oregon’s sole connection
to those assets was through Evans, who had never owned
or controlled them but had merely received income from
them, violated the Due Process Clause of the Fourteenth
Amendment. The Department of Revenue rejected that
due process argument and denied the requested revision
and refund (except for a small amount relating to legal
fees).
2
Evans paid Oregon income tax on those distributions from the trust.
436 Estate of Evans v. Dept. of Rev.
THE TAX COURT DECISION
Plaintiff appealed to the Tax Court, and both plain-
tiff and the department filed motions for summary judgment.
The Tax Court granted the department’s motion and denied
plaintiff’s motion, explaining its decision in an unpublished
order. The Tax Court first observed that, under the stan-
dard articulated by the United States Supreme Court, a tax
imposed by a state does not offend the Due Process Clause
if: (1) there is some minimum link or connection between the
state and the person, property or transaction it seeks to tax;
and (2) there is a rational relationship between the taxable
item and the values and benefits that the taxing state pro-
vides. Estate of Helene J. Evans v. Dept. of Rev., TC 5335, 7-8
(Or Tax, May 28, 2020) (summarizing North Carolina Dept. of
Rev. v. The Kimberley Rice Kaestner 1992 Family Trust, ___
US ___, ___, 139 S Ct 2213, 2219-20, 204 L Ed 2d 621 (2019)).
Addressing the first requirement, the Tax Court opined that,
under Curry v. McCanless, 307 US 357, 59 S Ct 900, 83 L Ed
1339 (1939)—a case involving a state’s imposition of its
estate tax on intangible trust property, the income from
which a deceased domiciliary of the state had had a lifetime
interest—“the requisite minimum connection to impose an
estate or inheritance tax always exists between the state
of a person’s domicile and the rights that the person holds
in intangible property.” TC 5335 at 10. The court explained
that the required minimum connection existed between the
trust property and Oregon (Evans’s state of domicile) due
to Evans’s “exclusive lifetime interest” in the trust. Id. at
10-11. Turning to the second, “rational relationship” require-
ment, the Tax Court cited Curry and another estate tax case
involving similar facts, Whitney v. State Tax Commission of
New York, 309 US 530, 60 S Ct 635, 84 L Ed 909 (1940), for
the proposition that the Due Process Clause permits impo-
sition of an estate or transfer tax on the “full value” of trust
assets that are acquired by one person “ ‘through the death of
another person,’ ” even when the decedent had had no “bene-
ficial interest” in the assets themselves. TC 5335 at 12 (quot-
ing Whitney, 309 Or at 538 (emphasis added by Tax Court)).
The Tax Court concluded that those cases were on all fours
with the present case and that, as such, the rational relation-
ship requirement also had been satisfied. TC 5335 at 11-16.
Cite as 368 Or 430 (2021) 437
PLAINTIFF’S ARGUMENTS
Before this court, plaintiff argues that the Tax
Court mischaracterized the due process cases on which it
relied. It contends that those same cases—and others—
show that the Due Process Clause does not permit a state
to impose an estate tax on intangible trust assets solely on
the ground that a deceased resident of the state had enjoyed
the income generated by those assets during her lifetime—
unless the decedent had had some practical control of the
assets during her lifetime. Plaintiff insists that Evans had
no such control of the assets of the Gillam Trust and, there-
fore, her death as an Oregon resident did not establish the
kind of link between Oregon and those trust assets that the
Due Process Clause requires. Neither, plaintiff argues, can
Oregon rely on the federal requirement that the trust assets
must be treated as part of Evans’s property for purposes of
the federal estate tax (because of the QTIP election), since
that federal requirement is simply a legal fiction and does
not establish Evans’s actual control, possession, or enjoy-
ment of the trust assets.
ANALYSIS
We begin by emphasizing that plaintiff does not
challenge the department’s statutory obligation under ORS
18.010(3) to include the trust assets in Evans’s Oregon tax-
able estate. Plaintiff’s sole argument is that doing so vio-
lates the Due Process Clause. To respond to that argument,
we first consider general due process limitations on a state’s
taxing authority and then turn to an application of those
principles in the circumstance of this case.
The Due Process Clause prohibits governmental
action that “deprive[s] any person of life, liberty or prop-
erty, without due process of law.” Implicit in the clause is
a requirement that the state exercise its authority only in
ways that are consistent with “traditional notions of fair
play and substantial justice.” Milliken v. Meyer, 311 US 457,
463, 61 S Ct 339, 85 L Ed 278 (1940).
With respect to a state’s authority to impose any
kind of tax, the essential due process issue is whether the
tax “bears fiscal relation to protection, opportunities and
438 Estate of Evans v. Dept. of Rev.
benefits given by the state,” i.e., “whether the state has
given anything for which it can ask return.” Wisconsin v.
J. C. Penney Co., 311 US 435, 444, 61 S Ct 246, 85 L Ed
267 (1940). As the Tax Court explained, the United States
Supreme Court has formulated the issue in terms of a two-
part test: First, there must be “some definite link, some
minimum connection, between a state and the person, prop-
erty or transaction it seeks to tax,” and second, the “income
attributed to the State for tax purposes must be rationally
related to ‘values connected with the taxing State.’ ” Quill
Corp. v. North Dakota, 504 US 298, 306, 112 S Ct 1904, 119
L Ed 2d 91 (1992) (quoting Miller Brothers Co. v. Maryland,
347 US 340, 344-45, 74 S Ct 535, 98 L Ed 744 (1954), and
Moorman Mfg. Co. v. Bair, 437 US 267, 273, 98 S Ct 2340,
57 L Ed 2d 197 (1978)); see also Kaestner, ___ US at ___,
139 S Ct at 2220 (stating the same test). Here, only the first
requirement—a “minimum connection”—is at issue; the
second requirement appears to be at issue only when a state
taxes a portion of the income earned by an entity operating
in interstate commerce.3 See Norfolk & W. Ry. Co. v. Missouri
State Tax Comm’n, 390 US 317, 325, 88 S Ct 995, 19 L Ed 2d
1201 (1968) (explaining that “[a]ny formula used” to allocate
to the state a portion of the income of an interstate taxpayer
“must bear a rational relationship, both on its face and in
its application, to property values connected with the taxing
State”).
The “minimum connection” requirement is assessed
under the same flexible standard that is used to determine
whether a state has sufficient minimum contacts with a
person or entity to exercise jurisdiction over that person or
entity. Quill, 504 US at 307-08. Whether the due process
challenge is to a state’s attempt to exercise jurisdiction or to
its attempt to impose a tax, the overriding principle is the
3
The state contends that it “found no case where the Court has applied [the
rationally related] standard to an estate tax,” and taxpayer does not disagree. The
Tax Court nevertheless considered one of plaintiff’s arguments in the course of
addressing the rationally related standard—plaintiff’s argument that a state resi-
dent’s interest in the income generated by trust assets does not support the state’s
taxation of the entirety of those assets. The federal cases show, however, that argu-
ments along those lines are relevant under the first, “minimum connection” inquiry.
See, e.g., Kaestner, ___ US at ___ n 5, ___, 139 S Ct at 2220 n 5, 2223 (considering
the interest of North Carolina resident in trust after specifying that Court was not
addressing the second requirement because the first was not satisfied).
Cite as 368 Or 430 (2021) 439
same: “[O]nly those who derive ‘benefits and protection’ from
associating with a state should have obligations to the State
in question.” Kaestner, ___ US at ___, 139 S Ct at 2220 (cit-
ing International Shoe Co. v Washington, 326 US 310, 319,
66 S Ct 1904, 90 L Ed 95 (1945)). See also J. C. Penney Co.,
311 US at 444 (“A state is free to pursue its own fiscal poli-
cies, unembarrassed by the Constitution, if by the practical
operation of a tax the state has exerted its power in relation
to opportunities which it has given, to protection which it
has afforded, to benefits which it has conferred by the fact of
being an orderly, civilized society”).
Under that rule, a state unquestionably may tax
interests in tangible property that is located within its bor-
ders. Curry, 307 US at 364. But a state also may tax inter-
ests in intangible property, consistently with due process,
if the taxpayer has in some sense enjoyed the “benefits
and protections” that the state offers. With respect to such
intangible property that exists outside of the taxing state,
the benefits and protections that are relevant are those that
the state offers to persons or entities within the state who
own or have similarly substantial interests in the property.
As the United States Supreme Court explained in Curry,
rights to intangibles “are but relationships between persons,
natural or corporate, which the law recognizes by attaching
to them certain sanctions enforceable in courts.” 307 US at
366. As a result, “[t]he power of government over them and
the protection which it gives them cannot be exerted through
control of a physical thing. They can be made effective only
through control over and protection afforded to those per-
sons whose relationships are the origin of the rights.” Id.
Thus, the Court concluded: “Obviously, as sources of actual
or potential wealth—which is an appropriate measure of
any tax imposed on ownership or its exercise—they cannot
be dissociated from the persons from whose relationships
they are derived.” Id.
In other words, whether a state has the necessary
minimum connection to intangible property that is con-
nected to the state only through an in-state resident depends
on the nature of the in-state resident’s interest in the prop-
erty. If the resident’s interest in the intangible property is
sufficiently substantial, such that it is a source of actual or
440 Estate of Evans v. Dept. of Rev.
potential wealth to and cannot be dissociated from the res-
ident, then his or her enjoyment of the benefits and protec-
tions offered by the state—including simply the benefit of
living in an “orderly, civilized society” for which the state is
responsible, J.C. Penney Co., 311 US at 444—is a sufficient
justification for the state to impose its tax on that property.
Kaestner, the case cited by the Tax Court, is a useful
starting point for understanding the essential due process
requirement in the context of trusts. At issue in Kaestner
was a North Carolina tax on any trust income that “ ‘is for
the benefit of’ a North Carolina resident.” ___ US at ___, 139
S Ct at 2219. North Carolina attempted to impose that tax
on income generated over a four-year period by a trust that
was administered under New York law by a trustee who
was a New York resident, on the ground that the trust’s sole
named beneficiaries resided in North Carolina. Those ben-
eficiaries, however, had not received any distributions from
the trust during the relevant tax years. Indeed, the benefi-
ciaries had had no right to distributions because, under the
terms of the trust, the trustee had “absolute discretion” to
distribute the trust income and assets to the beneficiaries
when and in whatever amounts he might decide, and during
the period in question, the trustee had chosen not to distrib-
ute any of the income that the trust had accumulated. Id. at
___, 139 S Ct at 2218-19. Confronted with the beneficiaries’
due process challenge to North Carolina’s imposition of the
tax, the Court reviewed its past cases dealing with state
taxes on trust assets and income based on a beneficiary’s
residency in the state and identified the operative rule:
“When a tax is premised on the in-state residence of a ben-
eficiary, the Constitution requires that the resident have
some degree of possession, control or enjoyment of the trust
property or a right to receive that property before the state
can tax the asset. Otherwise, the state’s relationship to the
object of its tax is too attenuated to create the minimum
connection that the Constitution requires.”
Id. at ___, 139 S Ct at 2222 (citations omitted). Applying that
rule to the circumstances of the Kaestner trust, the Court
concluded that the Due Process Clause precluded North
Carolina from taxing the trust assets during the tax years
at issue, emphasizing three facts: the in-state beneficiaries
Cite as 368 Or 430 (2021) 441
had not received any income from the trust during those tax
years, they had no right to control the trust or distributions
therefrom, and they could not count on necessarily receiving
any amount from the trust, even in the future. Id. at ___,
139 S Ct at 2223.
Kaestner is only a starting point, however. Although
it sets out a general rule requiring that an in-state trust
beneficiary “have some degree of possession, control or enjoy-
ment of the trust property or a right to receive that property”
before the state can tax that property, it does not explore
what might qualify as “some degree.” The parties point to
much earlier Supreme Court cases as sources of additional
guidance regarding what it means for a resident of a state to
have had “some degree of possession, control or enjoyment”
of intangible trust assets such that, upon their death, those
trust assets may be taxed as part of their estate. The parties
focus their arguments on three estate tax cases, all decided
within a two-year period some eighty years ago—Curry, 307
US 357, Graves v. Elliot, 307 US 383, 59 S Ct 913, 83 L Ed
1356 (1939), and Whitney, 309 US 530.
In the first case, Curry, a resident of Tennessee had
created a trust, funded by stocks and other intangibles,
designating herself as the income beneficiary for life and
reserving to herself certain powers, including the powers
to direct the sale of the trust property and to dispose of the
trust property by will. An Alabama corporation was des-
ignated as the trustee, and the trust was administered in
Alabama and under the laws of that state. 307 US at 360-
61. In her will, the trustor bequeathed the trust property
to the trustee in trust for the benefit of her husband and
children. Id. at 361.
Upon the trustor’s death, Alabama and Tennessee
both sought to impose an estate tax on the trust property,
and the trustor’s executors in Tennessee sought a declar-
atory judgment in the Tennessee courts as to the two
states’ authority in that regard. Id. at 361-62. On appeal
from a Tennessee Supreme Court decision holding that only
Tennessee could impose its tax, the United States Supreme
Court reversed, holding that both states could impose their
transfer taxes consistently with due process. The Court
442 Estate of Evans v. Dept. of Rev.
reasoned that Alabama could do so by virtue of the fact that
an Alabama trustee had legal ownership of the intangible
property, the beneficial interest in which was transferred
upon the trustor’s death, id. at 370, while Tennessee could
do so because of the in-state residency of a decedent who, in
life, had had a right to control the trust property, including
by directing its disposition upon her death, id. at 370-71.
With respect to the latter point, the Court explained:
“The decedent’s power to dispose of the intangibles was
a potential source of wealth which was property in her
hands from which she was under the highest obligation in
common with her fellow citizens of Tennessee, to contrib-
ute to the support of the government whose protection she
enjoyed. Exercise of that power, which was in her complete
and exclusive control in Tennessee, was made a taxable
event by the statutes of the state.”
Id. The Court noted, too, that “[f]or purposes of taxation,
a general power of appointment * * * has hitherto been
regarded by this Court as equivalent to ownership of the
property subject to the power.” Id. at 371.
In Graves, the Court reinforced its holding in Curry
and clarified that the significance of the power to dispose
of intangible property was not limited to an exercise of that
power but extended also to a relinquishment of such power
at death, through a failure to exercise it in life. The trust
at issue in Graves was created by a New York resident who,
during her lifetime, had transferred certain intangible
property to a bank in Colorado to be held in trust. 307 US at
384-85. The trust agreement provided that the trustee was
to pay the income from the trust to the decedent’s daugh-
ter for life and, thereafter, to the daughter’s children until
they reached a certain age, at which point the children were
to receive a proportionate share of the trust principal. The
decedent had reserved to herself the right to remove the
trustee, change the trust beneficiaries, or revoke the trust
and revest title to the property in herself at any point during
her lifetime. Id.
When the decedent died—without exercising any of
those reserved rights—New York tax authorities included
the intangible property held in the Colorado trust in its
Cite as 368 Or 430 (2021) 443
assessment of decedent’s New York estate, but the New
York Court of Appeals held that inclusion of that property
infringed due process. Id. at 385-86. The Supreme Court
reversed, emphasizing as it had in Curry that “the power of
disposition of property is the equivalent of ownership. It is
a potential source of wealth and its exercise in the case of
intangibles is the appropriate subject of taxation at the place
of the domicile of the owner of the power.” Id. at 386. As a
result, “[t]he relinquishment at death, in consequence of the
non-exercise in life, of a power to revoke a trust created by a
decedent is likewise an appropriate subject of taxation.” Id.
Relying on its reasoning in Curry, the Court concluded:
“[W]e cannot say that the legal interest of decedent in the
intangibles held in trust in Colorado was so dissociated
from her person as to be beyond the taxing jurisdiction
of the state of her domicile more than her other rights in
intangibles. Her right to revoke the trust and to demand
the transmission to her of the intangibles by the trustee
and the delivery to her of their physical evidences was a
potential source of wealth, having the attributes of prop-
erty. As in the case of any other intangibles which she pos-
sessed, control over her person and estate at the place of
her domicile and her duty to contribute to the support of
government there afford adequate constitutional bases for
imposition of a tax measured by the value of the intangi-
bles transmitted or relinquished by her at death.”
Id. at 386-87.
The final case that we consider, Whitney, differs
from Curry and Graves in that the due process question had
nothing to do with where intangible property held in trust
may be taxed constitutionally and therefore did not include
any discussion that might clarify the due process “minimum
connection” requirement. The trust at issue in Whitney was
established and funded in New York by the will of Cornelius
Vanderbilt. It provided for an annual income to Vanderbilt’s
wife and also gave Mrs. Vanderbilt the power to dispose of
the trust principal among the couple’s four children in her
will, in such proportions as she might choose. The trust fur-
ther provided that, if Mrs. Vanderbilt did not exercise that
“special power of appointment” in her will, then the trust
property would be divided equally among the four children
444 Estate of Evans v. Dept. of Rev.
upon her death. 309 US at 534-35. Mrs. Vanderbilt did
exercise the power of appointment in her will and, upon
her death, the taxing authorities of New York (where the
trust was administered and Mrs. Vanderbilt had at all
times resided) included the value of the trust principal in
Mrs. Vanderbilt’s gross estate for purposes of calculating
the state’s estate tax. Mrs. Vanderbilt’s beneficiaries and
executors challenged New York’s inclusion of the trust prin-
cipal in her estate, arguing that doing so violated the Due
Process Clause, given that Mrs. Vanderbilt had not been the
“beneficial owner” of the trust corpus—by which the chal-
lengers meant that she could not use the corpus of the trust
herself, could not appoint it to her own estate, and could not
direct it to her creditors. Id. at 535-38.
The Supreme Court rejected the due process chal-
lenge. The Court explained that, to the extent that New
York’s estate tax statute was aimed at diverting to the com-
munity a portion of the total wealth released by a death, the
state was
“not confined to that kind of wealth which was, in collo-
quial language, ‘owned’ by a decedent before death, nor
even to that over which he had an unrestricted power of
testamentary disposition.”
Id. at 538. Instead,
“[i]t is enough that one person acquires economic inter-
ests in property through the death of another person, even
though such acquisition is in part the automatic conse-
quence of death or related to the decedent merely because
of his power to designate to whom and in what proportions
among a restricted class the benefits shall fall.”
Id. at 538-39. After pointing to various other circumstances
in which property not “beneficially owned” by a decedent
may nevertheless be included in his or her estate, the Court
made an even more expansive statement:
“A person may by his death bring into being greater inter-
ests in property than he himself has ever enjoyed, and the
state may turn advantages thus realized into a source of
revenue[.] * * * [I]f death may be made the occasion for tax-
ing property in which the decedent had no ‘beneficial inter-
est,’ then the measurement of that tax by the decedent’s total
Cite as 368 Or 430 (2021) 445
wealth-disposing power is merely an exercise of legislative
discretion in determining what the state shall take in return
for allowing the transfer.”
Id. at 539-40 (emphasis added).
The parties here draw radically different conclu-
sions from the foregoing cases about the correct application,
in the estate tax context, of the Kaestner rule. To reiterate,
Kaestner holds that, to the extent that a state relies on the
in-state residency of a constituent4 of an out-of-state trust
to tax the trust property, the demands of due process are
satisfied only if the state-resident constituent has “some
degree of possession, control or enjoyment of the trust prop-
erty or a right to receive that property.” ___ US at ___, 139
S Ct at 2222. Plaintiff contends that the cases all support its
contention that a decedent who was the income beneficiary
of an out-of-state trust must have had some actual control
over the assets of the trust before the decedent’s home state
may impose its estate tax on those assets. More specifically,
plaintiff adds, the cases show that “for due process purposes,
the minimum, requisite control over the principal of a trust
is the grant of at least some ability to decide or control how
the trust principal will be invested, managed, or distrib-
uted.” Plaintiff then asserts that, because Evans had had no
ability to control how the Gillam Trust assets were invested,
managed, or even distributed upon her death, Oregon could
not rely on her in-state residency at the time of her death to
establish the required minimum connection to those assets.
The department contends that Curry, Graves, and
Whitney merely offer examples of how the due process
requirement that the decedent have “some degree of posses-
sion, control or enjoyment of the trust property or a right
to receive that property,” Kaestner, ___ US at ___, 139 S Ct
at 2222, may be satisfied and do not support the rule that
plaintiff purports to draw from them. According to the
department, those cases establish that a state may include
the assets of an out-of-state trust in a decedent’s estate when
the decedent had either complete (in Curry and Graves) or
more limited (Whitney) control respecting the disposition of
4
Kaestner uses the inclusive term “trust constituent” to refer to a trust’s
“settlor, trustee, or beneficiary.” ___ US at ___, 139 S Ct at 2221.
446 Estate of Evans v. Dept. of Rev.
the trust assets, but they do not establish that due process
requires such control or requires any other specific feature
in an in-state decedent’s relationship with an out-of-state
trust before the state of residence may impose its estate tax
on the trust assets. In particular, the department contends
that those cases do not speak to the circumstance here, in
which decedent had a large degree of enjoyment of the trust
property by virtue of her exclusive rights under the terms of
the trust.
We agree with the department that the cited cases
do not establish that a state may impose an estate tax on
the assets of an out-of-state trust only if the deceased ben-
eficiary had the ability to control how the assets of that
out-of-state trust were managed, invested, or distributed.
Instead, based on the rule announced in Kaestner, ___ US at
___, 139 S Ct at 2222, we conclude that the demands of due
process also could be satisfied by a showing that a resident
decedent had some degree of possession or enjoyment of, or
right to receive, the trust property. See Kaestner, ___ US at
___, 139 S Ct at 2223-24 (demonstrating that court looks at
whether beneficiaries had some enjoyment or future right to
receive trust property, not just at whether they had right to
control trust property, when considering “minimum connec-
tion” question).
APPLICATION
Applying that standard to this case, we conclude
that Evans had sufficient “enjoyment” of the trust princi-
pal (in addition to the enjoyment of the income generated
thereby) to satisfy Kaestner’s requirement of “some degree
of possession, control, or enjoyment” of the trust assets
and thus to permit Oregon to include those trust assets in
Evans’s taxable estate.5 While, under her husband’s modified
will, Evans could not claim a right to the whole of the trust
principal or any particular portion thereof, she had a poten-
tial right to receive distributions of principal, to the extent
that trust income was insufficient to satisfy her needs. No
5
“Enjoyment,” in this context, appears to derive its meaning from the
intransitive form of the verb “enjoy,” i.e., “to have for ones use, benefit, or lot.”
Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/enjoy
(accessed July 21, 2021).
Cite as 368 Or 430 (2021) 447
other person could receive any part of the principal during
Evans’s lifetime. And while the remainder beneficiaries had
a right to whatever was left of the principal after Evans’s
death, they could not prevent her from receiving distribu-
tions of principal that would reduce or even eliminate their
own ultimate shares in the remainder.
Even under the settlement in which Evans ceded
her rights with respect to the trust principal under her hus-
band’s will and Montana law, she received a substantial one-
time payment that consisted of part of the principal. And she
retained a potential right to distributions from principal, to
the extent that the trust principal failed to generate income
sufficient to cover the agreed-upon fixed monthly distribu-
tion. In all of those ways, Evans could and did access the
trust principal for her own use and benefit in a way that
no other person could during her lifetime. We conclude that
Evans thereby had a substantial measure of enjoyment of
the trust principal. And therefore, under the rule set out in
Kaestner, Oregon could rely on Evans’s status as an Oregon
resident to impose its taxes on that trust principal without
violating the Due Process Clause.6
We caution, however, that our focus on Evans’s
enjoyment of the trust assets should not be taken as a
conclusion that the circumstances here could not be con-
sidered sufficient control of the trust assets. Plaintiff has
insisted that Evans never had control of the trust assets in
the required sense (“some ability to decide or control how
6
Evans also had at least a potential “right to receive” all the trust assets
within the meaning of the Kaestner rule. A term of her husband’s will that was
unaffected by the settlement provided:
“If any trust created hereunder shall violate any applicable rule against per-
petuities, accumulations, or any similar rule or law, my trustee is hereby
directed to terminate such trust on the date limited by such rule or law, and
thereupon, the property held in such trust shall be distributed to the persons
then entitled to share the income therefrom in the proportions to which they
are entitled to share the income therefrom, notwithstanding any provision of
this will to the contrary.”
Under that term of the will, Evans would have been entitled to receive the trust
assets if the trustee had been required to dissolve it for a violation of law—and,
indeed, would be the only person so entitled. The existence of that contingent
right adds to our conclusion that, overall, Evans had the requisite “degree of
possession, control or enjoyment of the trust property or [ ] right to receive that
property.” Kaestner, ___ US at ___, 139 S Ct at 2222.
448 Estate of Evans v. Dept. of Rev.
the trust principal will be invested, managed, or distrib-
uted”) because the management and distribution of the
assets was completely in the hands of the trustee. But plain-
tiff’s description of Evans’s rights—or lack thereof—is not
entirely accurate. The modified will that controlled the trust
clearly contemplated that Evans would receive distributions
from the trust assets as “necessary for [her] health, educa-
tion, maintenance or support in [her] accustomed manner
of living.” The fact that it directed that those distributions
be in “such amounts from the principal as the trustee deter-
mines to be necessary” for that purpose did not foreclose
the possibility that Evans could judicially compel distri-
butions of principal to herself, if her needs were not being
met. Furthermore, under Montana law, Evans could force
the trustee to take certain actions with respect to the trust
property if the amount of trust income that he distributed
to her was “insufficient to provide [her] with the beneficial
enjoyment required to obtain the marital deduction.” MCA
§ 72-34-445. Evans did ultimately agree to give up those
potential claims in exchange for a lump sum payment from
principal and a right to a monthly distribution set at a spec-
ified amount. But we leave for another day the question of
whether such a settlement rendered irrelevant any potential
control of the trust principal that beneficiary might have
had for purposes of the Kaestner rule or whether the abil-
ity to enter into a settlement regarding distribution of the
trust assets was itself a demonstration of control. We need
not resolve those questions because we conclude that Evans
otherwise satisfied Kaestner’s requirement that she have
sufficient “possession, control, or enjoyment” of the trust
assets to permit Oregon to include the assets in Evans’s tax-
able estate.
Plaintiff, nevertheless, insists that satisfying the
Kaestner test is not enough, that due process requires more
in this case. Seemingly appealing to a more generic under-
standing of what the Due Process Clause requires, plaintiff
contends that it is confiscatory and unfair to allow Oregon
to tax the assets of a Montana trust based solely on the facts
that the trust assets were designated as QTIP for purposes
of federal estate taxes and that the trust’s income beneficiary
happened to be living in Oregon when she died. Plaintiff’s
Cite as 368 Or 430 (2021) 449
points in that regard appear to be twofold. First, plaintiff
suggests that it is unfair for Oregon to rely on the federal
tax QTIP election of Gillam’s executor as a statutory basis
for including the trust assets in Evans’s Oregon estate, when
the quid pro quo rationale that justifies the QTIP mecha-
nism—inclusion of the value of trust property in the estate
of a surviving spouse in exchange for the earlier deduction
of the value of that property from the estate of the original
decedent—is not relevant to Evans’s Oregon estate (because
there had been no earlier deduction from Gillam’s estate
either in Oregon or Montana). And second, plaintiff suggests
that including the trust property in Evans’s Oregon estate
would be unexpected and arbitrary. According to plaintiff,
neither Gillam, in creating the trust with the federal mar-
ital deduction in mind, nor his executor, in electing to des-
ignate the trust property as QTIP, could have foreseen that
the trust assets would thereby become subject to taxation
in Oregon, based on the mere happenstance that Evans, the
income beneficiary, moved to and died here.
Plaintiff’s first argument misapprehends the kind of
fairness that the Due Process Clause requires. As explained
above, a QTIP election permits a married couple to defer
certain taxes that otherwise would be imposed on the estate
of the first to die until the death of the survivor. It does so
by allowing a deduction of QTIP-designated trust property
from the original decedent’s estate in exchange for the sub-
sequent inclusion of the same trust property in the estate
of the survivor. In the many states that, like Oregon, tie
the value of a decedent’s estate for state tax purposes to
the value of his or her federal estate, a federal QTIP elec-
tion generally will result in application of the same bargain
or exchange to the state taxes that pertain to the affected
individuals: Property in a QTIP trust will not be subject
to either federal or state estate taxes when the first spouse
dies, but will later be subject to both the federal and state
taxation as part of the surviving spouse’s estate.
We recognize that differences in state tax laws
mean that a federal QTIP election will not always produce a
corresponding benefit with respect to the original decedent’s
state-level estate—as here because Montana does not tax
450 Estate of Evans v. Dept. of Rev.
estates—yet another state in which the surviving spouse
dies includes the trust property in that surviving spouse’s
taxable estate. That difference in outcome is simply the
result of permissible differences in the tax laws of the states
that are involved, not a violation of the Due Process Clause.
Plaintiff also suggests that Oregon’s inclusion of the
trust assets in Evans’s Oregon estate is unfair in the sense
of being caused by an unforeseen and arbitrary event—
plaintiff’s relocation to and death in Oregon, a state that
has an estate tax and that bases that estate tax on the value
of the decedent’s federal taxable estate. But, as the depart-
ment points out, the possibility of incurring additional tax
liability depending on where Evans chose to reside was
inherent in the election to designate the assets of the Gillam
Trust as QTIP and a risk that Gillam’s executor knowingly
took when he made that election. Evidence of that fact is in
Article Fifth of Gillam’s modified will, which, in conjunc-
tion with authorizing the QTIP election, directs that, upon
Evans’s death, the trustee of the Gillam Trust shall pay
over to the legal representative of her estate such amounts
as the trustee shall determine for the payment of “federal
and state death taxes * * * imposed by any jurisdiction by
reason of [Evans’s] death and with respect to any property
included in this trust.” (Emphasis added.) Moreover, Evans’s
move to Oregon was quite the opposite of unforeseen: She
moved to Oregon a month before Gillam died, and many
months before Gillam’s executor even began the process of
modifying Gillam’s will to allow the QTIP election.
We are persuaded, in fact, that Oregon’s inclusion
of the assets of the Gillam Trust in Evans’s Oregon estate
should be considered fair precisely because of the choice by
Gillam’s executor to designate those assets as QTIP. Our
conclusion that Evans’s interests in the assets of the trust
were such that Oregon’s imposition of its estate tax on those
assets does not offend due process draws on the specific con-
text of ORS 118.005(7), which bases Oregon’s estate tax on
the value of a decedent’s federal estate; a QTIP election that
resulted in a reduction to Gillam’s federal estate in exchange
for a subsequent increase in Evans’s federal estate; and an
agreement that the trust—not Evans’s heirs—would be
Cite as 368 Or 430 (2021) 451
liable for any resulting increase in Evans’s federal and state
estate taxes.
We have determined that Evans had sufficient
enjoyment of the assets of the Gillam Trust during her life-
time that those assets cannot be dissociated from her, and
that therefore, through Evans, Oregon had the minimum
connection to the trust assets that due process requires
before Oregon may tax the assets. And we have rejected
plaintiff’s additional arguments that, even if Oregon had
the required minimum connection to the assets, its taxa-
tion of the assets is nonetheless unfair—and thus violates
the Due Process Clause. It follows that the Tax Court did
not err when it determined that Oregon’s inclusion of the
trust assets in Evans’s Oregon estate was consistent with
due process.
The judgment of the Tax Court is affirmed.