Nevada Incomplete Non-Grantor Trusts
A NING, when part of an overall estate and tax plan, can provide asset protection and effectively move income from state tax jurisdictions to Nevada – a state with no income or capital gains tax.
This allows for significant compounding of investment income when compared to the drag on a portfolio created by the impact of local level income and capital gains taxes. The advantages of a NING for residents of California, Hawaii, Oregon, New Jersey, other high-tax states, and non-U.S. residents are evident.
How does a NING work?
An incomplete non-grantor trust takes advantage of gift tax laws and is constructed to be an incomplete gift. Clients that live in high-income tax states, such as California, establish an incomplete non-grantor trust in Nevada nearly avoiding state income tax altogether. NINGs must be structured carefully to navigate through many tax laws ensuring the trust is taxed in Nevada–a state with no income tax. Alliance Trust Company works with a network of attorneys and is happy to recommend an attorney to draft your NING.
Is a NING Right For You?
While the benefits of NINGs may be tremendous, they are designed for a narrow population. Potential NING clients should have the following characteristics:
- Reside in a state with high-income tax rates
- Close to or at the top of Federal tax rates
- Have substantial taxable income from intangible assets
At Alliance Trust Company, we have seen many families benefit from using this approach. These families invest in Nevada with a trust designed to benefit their children or pay for future educational expenses.
Some of these trusts are designed with investments that are expected to have large liquidity events, again occurring in Nevada and not California or other high-tax states. Venture capital and angel investments, as well as company stock that has a low-basis, are some of the suitable candidates to place into NINGs.
A NING is not for everyone – income must be sourced from intangible investments, not real property in the home state (i.e., if you own rental property this will not work for this type of income). The compressed income tax brackets for trusts also mean that you need to be in a high-income tax bracket for this strategy to be attractive. Lastly, the trust must be carefully drafted to conform to IRS rulings.
For more information on the advantages of NINGs, please contact Alliance Trust Company.