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How May We Assist You Further?
At Crawford Trust, we understand that every family is different and carries individual needs. Our experienced trust officers are happy to reach out and learn more about how we may help you.
An Incomplete Non-Grantor Trust is an asset protection trust carrying robust state income tax savings and benefits for grantors living in high-income tax states such as California. Nevada and Delaware are the two states grantors often consider when establishing an NING. (SD as well, but i’m not sure why we need to talk about other states.
A grantor transfers assets to the NING trust as incomplete gifts avoiding either utilizing their gift tax exemptions, or gift taxes if the assets are larger than the exemption. Because the NING is a non-grantor trust, the grantor is shielded from state income tax because the trust is established in Nevada, a state with no income tax. NINGs are often utilized by grantors that have used their entire gift tax exemption or hope to use the exemption in the future, as well as for assets that are substantially larger than the federal estate tax exemption, hence the gift does not trigger a gift tax.
In 2021, the Annual Gift Tax Exemption is $15k, and the Lifetime Gift Tax Exemption is $11.7mm. Exemptions double for spouses.
When funding (or “gifting” assets to) the NING, the transfer must be structured as an incomplete gift. The trust document gives the grantor a lifetime non-general power of appointment authorizing the grantor to direct trust distributions to beneficiaries named in the trust document.
In terms of funding a NING through an incomplete gift, the grantor reserves sufficient powers over the assets within the trust. For example, the grantor retains the ability to name new beneficiaries or revest the assets in the trust.
With a completed gift, a grantor gives up some control of the assets. For example, a grantor gifts a daughter with $15k. The grantor has no control over the gift to his daughter making the gift complete.
When a trust is a non-grantor trust, the trust becomes the taxable entity rather than the grantor. Thus, a grantor in a high-income tax state may establish a trust in a state with more advantageous tax laws, like Nevada. The assets in the Nevada trust would not be subject to any state income tax whatsoever.
While fictitious, the application below is based on a real case.
Michael is an entrepreneur amassing a small fortune with his data analytics company. Valued at $50mm, the company is currently above the lifetime gift tax exemption, and the company is appreciating rapidly. Michael expects the company to be acquired in the next few years.
Michael is concerned about his company’s liability exposure in California as California is a creditor-friendly state. Michael is also concerned that he is nearing his lifetime gift tax exemption of $11.7mm, knowing that upon sale of his company, he will owe 13.3% of the sale to California.
Michael is concerned about his company’s liability exposure in California as California is a creditor-friendly state. Michael is also concerned that he is nearing his lifetime gift tax exemption of $11.7mm, knowing that upon sale of his company, he will owe 13.3% of the sale to California.
Michael gifts the asset (his company) as an incomplete gift into a NING.
At Crawford Trust, we understand that every family is different and carries individual needs. Our experienced trust officers are happy to reach out and learn more about how we may help you.
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The information on this website and its content does not constitute a solicitation to become a client of Crawford Trust Company, LLC. Currently, Crawford Trust company cannot solicit or serve clients in the following areas of Nevada: Washoe County, Douglas County, and Carson City. Crawford Trust Company, LLC does not accept any responsibility in actions that would result from the interpretation of this website information.