Nevada Incomplete Non-Grantor Trust
Nevada is known for having favorable asset protection laws, which attracts wealthy families from all over the world who are always looking for innovative ways to save money and protect their wealth.
One of the unique tools for asset protection available today is the Nevada Incomplete Non-Grantor Trust (NING). Although a NING may not be suitable for everyone, many families will find it highly advantageous due to their specific situation.
What is a Nevada Incomplete Non-Grantor Trust?
A NING is a Trust with a few unique advantages:
- Transfers of funds to a NING are incomplete gifts
- As a Non-Grantor Trust, a NING is treated as a separate taxpayer for income tax purposes
- A NING is superior to other INGs because Nevada has the most favorable Trust laws in America
Using a NING, a settlor may transfer assets to the Trust, which moves the income tax liabilities from the settlor to the Trust. Since Nevada has no state income tax, a NING is attractive to individuals living in a state with high-income taxes because assets in a NING are treated as a separate taxpayer located in Nevada.
Who can benefit the most from a Nevada Incomplete Non-Grantor Trust?
NINGs primarily benefit top income earners who want to avoid high state income tax and those who want to give substantial gifts to beneficiaries or make substantial charitable donations.
Individuals who have the following characteristics are ideal candidates for a NING:
- You are living in a state with high state income tax.
- You have existing intangible assets with significant tax exposure that you could transfer to a NING for an extended period of time without resulting in cash flow issues.
- Your income is already at the top of Federal tax rates and would remain near or at the top of Federal tax rates after transferring intangible assets to a NING.
The scenarios that make sense for a Nevada Incomplete Non-Grantor Trust
A NING is a unique Trust that is most useful in a few specific scenarios.
Avoiding a Completed Gift
When a settlor wishes to create an Irrevocable Trust without sacrificing a basis adjustment for Trust assets at death or having to pay gift tax, a NING is a worthy option to consider. This is because assets in a NING are included in the settlor’s gross estate where the basis is adjusted to the date of death, and transfers are not completed gifts, nor do they require a federal gift tax exclusion.
Establishing the Trust as a Separate Taxpayer
If a settlor lives in a state with high state income tax, they can form a NING to transfer some of that tax burden to a jurisdiction with no state income tax. NINGs are not subject to taxes in the settlor’s home state, and the Trust residence is not determined by the settlor’s domicile.
Preserving a Family Nest Egg
When a settlor has a significant amount of assets, they may want to ensure some of those assets are protected for their family or themselves. A NING offers asset protection from creditors of both the settlor and the beneficiaries.
Important considerations before setting up a Nevada Incomplete Non-Grantor Trust
Every situation is different, and you should always weigh your options when considering which instruments to use for asset protection. The following are the most important consideration to make before establishing a NING:
- Your current residence and potential future residence(s)
- The circumstances related to your family and financial situation
- The type of assets you want to transfer to a NING
- The selection a trustee and deciding the scope of their powers
- The selection of advisors and trust protectors, along with their expertise and residence
Under what circumstances should someone avoid forming a Nevada Incomplete Non-Grantor Trust?
A NING is not suitable for everyone and every situation. Many situations would raise suspicion from state tax authorities and benefit more from other forms of asset protection.
Under the following circumstances, a NING might not be the best option:
- Seeking protection for assets that are likely to be sold within a short period after forming the NING
- Funding a NING with assets the settlor needs to maintain their current standard of living
- Distributing a significant portion of the funds from selling a NING’s principal asset back to the settlor
Why Nevada is the best state for setting up an Incomplete Non-Grantor Trust
Nevada has established itself as the clear choice for hosting an Incomplete Non-Grantor Trust due to our favorable laws and the consistency in our legal system regarding asset protection.
The Advantages of a NING Over Other INGs:
- Nevada has no state income tax
- NING settlors can avoid home state taxes
- Nevada has no gift tax liability (Delaware has “completed gift” now)
- A NING receives creditor protection under Nevada law
For more information on the advantages of NINGs, please contact Alliance Trust Company.