In Linn v. Department of Revenue, the Illinois Fourth District Appellate Court reviewed the state’s statutory framework for taxing trusts. Linn v. Department of Revenue, 2013 Il App (4th) 121055. On constitutional grounds, the court limited Illinois’ power to impose taxes under its “once subject to tax, forever subject to tax” regime.
This case creates planning opportunities to minimize Illinois income taxes. However, it should be noted that the Linn case applies to trusts that pay Illinois income tax on trust dividends, interest, capital gains or other income retained by the trust and not distributed to a beneficiary. This case does not apply to income distributed to an Illinois beneficiary; that income clearly can be taxed by Illinois.