NING stands for Nevada Incomplete-gift Non-Grantor Trust. An ING Trust is an irrevocable trust designed to be treated a certain way for tax purposes. Incomplete-gift means that transfers to the trust do not require filing of a gift tax return (Form 709) and the trust assets remain part of your estate for estate tax purposes. Non-grantor trust means that the trust is a separate income taxpayer.
State Income Tax Savings
The magic of this trust lies in its huge potential for state income tax savings or deferral. Because Nevada has no state income tax, and has favorable trust laws, it is a popular State to form an “ING” trust. Other popular states include Delaware, Wyoming, and Alaska (DING, WING, AKING).
Here’s how it works
The Settlor establishes the ING trust in a state which has no state income tax such as Nevada. The trust must have a trustee in that state. Contributions to the trust have no gift tax consequences and the trust files and pays its own income taxes. When the trust earns income it pays federal income tax but because it is established in Nevada it pays no state income tax on undistributed income.
Here’s an example:
A Utah resident transfers C-corp stock in the company he founded to a NING Trust. In the future, the NING Trust sells that stock for $10 million dollars. The NING Trust pays federal income tax, however the trust avoids the 5% Utah income tax because it is a Nevada resident and taxpayer. Assuming the basis in the stock was zero, there is a state income tax savings of $500,000. A California resident could have save or defer over $1.3 million based on California’s current top tax bracket of over 13%.
The IRS has issued several private letter rulings approving this type of trust (PLR 201310002 through 201310006 and Private Letter Rulings 201410001 through 201410010). It is crucial that a NING Trust is properly drafted so that it provides the desired benefits.
Is a NING Trust Right for You?
It’s important to understand the tax laws of your state to determine whether a NING Trust is right for you. Three of the major issues for your attorney and tax advisors to consider are:
- Tax Laws in Your State – Each state has varying laws as to how to tax out of state trusts. While this strategy may work very well for many, understanding your state’s tax laws is important.
- Nature of the Assets – Different assets will have different treatment. For example, C-corp stock v. S-Corp stock (or LLC interests) will have different tax consequences. Some assets may be more favorable than others.
- Location of the Assets – It’s challenging to transfer assets to an ING which are physically located in your state (real estate, etc.). However stock or accounts are assets which can be transferred to another state. States will also tax income that is “sourced” within the state. So, if real estate, or property located within your state is sold, even if owned by a NING Trust, your state will still tax income “sourced” in your state.
We have years of experience preparing this type of trust and have seen clients save or defer millions in state income taxes.
Contact us for a free consultation to see if a NING Trust works for you.