IRS Approved NING Trust provides Substantial Tax Savings

For many years, we have helped clients reduce income taxes by using a Nevada trust often referred to as a “NING Trust” (Nevada Incomplete Gift Non-Grantor Trust). In PLR 20131002, the IRS approved this concept by ruling that the trust qualified as a complex trust for income tax purposes and that gifts to the trust were incomplete for federal gift tax purposes. In other words, a person can transfer assets of unlimited value to a NING Trust without gift tax consequences. The income of the NING Trust is taxed at the trust level and does not flow through to the grantor. Because Nevada has no state income tax there is huge potential for income tax savings. Here are three examples of how a NING trust can save taxes:

A California resident can avoid the 13.3% California tax on investment assets or capital gains. For example, assume a California resident establishes a properly structured [NING] trust and contributes a $20 million stock portfolio that produces 8% taxable income per year. Over a period of 10 years, the California income tax saved could be $2,500,000. Over 20 years, the compounded savings from not paying California income tax could be $8,500,000. (See Gordon Schaller & The 13.3% Solution: of DINGs, NINGs, WINGs and Other ThINGs, LISI Estate Planning Newsletter #2191 (February 5, 2014)).

As another example, we have a client who placed his stock into a NING trust prior to a sale of his company. When the stock was sold by the NING trust, the client saved over $5,000,000 in state capital gains taxes. Later, when the trustee terminated the trust and distributed the assets back to the client, the client was not required to pay state capital gains tax on the distribution because the state does not tax capital gains distributed from a nonresident trust.

As a third example, a professional athlete transferred the majority of his investment portfolio to a NING trust. The athlete pays federal and state tax on his W-2 earnings and on the investments he holds outside of the NING trust. The athlete is not required to pay state tax on the investment income earned by the trust, and this allows the trust to grow free of state income tax.

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The information and examples above are provided as general information and may not be used as tax advice for any particular situation. Each person should seek individualized tax advice for their own situation.