What is an Incomplete Non-Grantor (ING) Trust?

An Incomplete Non-Grantor (ING) Trust is a specialized trust that allows individuals to avoid state income taxes on assets held within the trust. The assets transferred to the trust are not considered completed gifts for federal gift tax purposes, meaning the grantor retains some control. However, the trust is treated as a separate taxpayer for income tax purposes, so the income generated by the trust is taxed at the trust level, not by the grantor.

How Does an ING Trust Work?

The trust must be carefully drafted to ensure it does not inadvertently become a grantor trust, where the grantor is liable for the trust's taxes. The assets transferred to the trust remain incomplete gifts, meaning no gift tax applies. The trust, which must be set up in a state that allows self-settled asset protection trusts (like Nevada, Wyoming, or Alaska), helps minimize state income taxes as long as the assets remain in the trust.

Who Should Consider an ING Trust?

- Live in states with high-income tax rates

- Have significant assets that they don’t need for daily expenses

- Want to reduce or eliminate state income taxes on trust assets

However, ING trusts are not recommended for residents of states that tax non-grantor trusts based on the grantor’s residency, as certain states have restrictions on their use.

What Are the Benefits of an ING Trust?

• State Income Tax Savings: Assets in the trust are not subject to state income tax, provided the assets stay in the trust.

• Wealth Management: Trustees can manage assets, and beneficiaries can benefit from the trust without immediate taxation.

• Flexibility: You can include your spouse and descendants as beneficiaries while retaining some control over the trust.

What Happens If Distributions Are Made?

If assets are distributed from the trust to beneficiaries, the beneficiaries are responsible for paying state income taxes on those distributions. In some states, "throwback" rules may apply, taxing even prior years' undistributed income when it's eventually distributed.

Should You Set Up an ING Trust?

An ING trust can be an excellent tool for high-net-worth individuals looking to reduce state income taxes. However, it requires careful planning and should be drafted by a qualified estate planning attorney. This trust can be part of a broader estate plan but must be done in compliance with state laws and regulations.

For more information, contact our office at Askew & Associates, P.A. by calling 954-546-2699.

Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns.