ING Things: What You Need to Know about Incomplete Non-grantor Trusts

What is an ING Trust?

In the world of estate planning, “ING” is more than just a suffix. It’s an acronym for Incomplete Non-Grantor (trust) and often has another letter in front of it to indicate the state under which the trust is governed—often Nevada, Delaware, Wyoming, or Alaska (NING, DING, WING, and AING, respectively). It’s a highly sophisticated, beneficial estate planning strategy that intentionally straddles the line separating grantor trusts and non-grantor trusts, offering the best of both worlds—resulting in potentially massive state tax savings—to those who successfully create and operate them.

 

This tricky trust is a delicate balancing act and can fail when not executed correctly. An Incomplete Non-Grantor trust retains the flexibility and control of a grantor trust while offering state tax savings and asset protection like a non-grantor trust.

How does an ING trust work?

It can be difficult to conceptualize these types of trusts and their benefits with definitions alone. Consider the following examples:

 

  • A Utah resident establishes a Nevada Incomplete Non-Grantor trust (“NING”) and contributes stock in a private company worth $100M. The company is sold and the proceeds are paid to the NING Trust. The client pays federal tax but no state tax, savingthe client approximately $4.5M (based on a state income tax rate of 4.5% in Utah). The trustee of the NING trust later distributes all of the sale proceeds to a Utah resident and nostate tax is due because Utah does not tax a distribution of capital gains from a non-resident trust.
  • A California resident establishes a properly structured non-grantor trust and contributes a $10M investment that produces 8% taxable income per year. Over a period of 10 years, the California income tax saved could be $1.2M. Over 20 years, the compounded savings from not paying California income tax could be over $4M. The assets of the non-grantor trust are protected from creditors and all types of liabilities against the client. The client then retires and moves to Florida where trust distributions can be received without state tax (Florida has no state income tax).

Sound too good to be true? Well, some states agree. Specifically, New York and California have cracked down on Incomplete Non-Grantor trusts by redefining grantor trusts within their state tax codes. That said, there are still some strategies we can execute to help residents of those states get the most out of their estate plan.

Should I set up an ING trust?

There are a few factors to consider with this question. First, you should understand that the most commonly attractive feature of an Incomplete Non-Grantor Trust is the state tax savings. If your state, income, or other circumstances make state income tax a concern for you, it may be beneficial to set up an ING trust.

 

Another key component to consider for a non-grantor trust is the choice of trustee. You need a trustee that meets the following criteria:

 

  • They are professional and credible so the trust will hold up if challenged
  • They won’t (and can’t) steal your money
  • They are responsive and easy to work with
  • Their fees are not excessive

Alongside the state tax benefits, you should note that ING trusts can also be useful for asset protection and general estate planning. And if your main goal is asset protection and you aren’t too concerned with state taxes, don’t worry—we have top-quality solutions for that, too.

Let us be your INGman!

While we’re certainly not the only ones who can help you create an ING trust, we’re confident that we can provide solutions and strategies of the highest caliber. In estate planning (and life in general), it can be tempting to hire the lowest bidder, but our experience has taught us that, whenit comes to protecting your assets and finding ways to save on taxes, elevated quality and extensive experience pay for themselves many times over.

 

McCullough has created hundreds of ING trusts over the past 27 years. Like the iPhone, we’re constantly on the lookout for ways to improve our trusts, and they get better over time (plus we’ll never change the shape of the charging cable!). Pursuit of that goal over nearly three decades has put us ahead on the learning curve of developing the very best trusts and the very best practices for reducing audit risk and amplifying the value that these trusts can provide.

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