Saving State Income Taxes: NING Trusts and Completed Gift Non-Grantor Options

By Steven J. Oshins, Esq., AEP (Distinguished)

Prior to the Trump Tax Act, state income taxes paid were deductible against federal income tax. However, the Trump Tax Act limits the amount of the federal income tax deduction for state income taxes paid, real property taxes paid and sales taxes paid to a cumulative (yes, cumulative!) total of $10,000 per year.

The $10,000 is used up for property taxes only for many of our clients. Therefore, state income taxes paid are essentially no longer deductible! This is why state income tax avoidance planning has arguably become the hottest area of estate planning.


A non-grantor trust is an irrevocable trust that is drafted so that the taxable income is taxed to the trust itself, except as to any taxable income that is distributed to a beneficiary. A distribution of taxable income to a beneficiary is taxed to that beneficiary and the trust receives a corresponding deduction so there is no double tax.


The typical client is a resident of a state with a high state income tax who is either selling a business or other asset that will have a large capital gain or who has an asset, such as a large brokerage portfolio, that has sizable distributions that would be taxed by the client’s home state if the client hadn’t set up the non-grantor trust. It is important to note that income earned by an asset, such as a locally-run business or local real estate, is considered sourced to the client’s home state and therefore cannot avoid state income taxes using the trust.


Different states tax non-grantor trusts under different rules.

Some states tax a non-trust based solely on the residency of the settlor or testator. Other states tax a non-grantor trust based solely on the residency of one or more trustees. Still other states tax a trust based solely on the place of administration. And other states tax a trust based on more than one of these factors or even based on different factors.

Therefore, the estate planning must always consider the residency of the various parties when designing the trust to avoid state income taxes.


The estate planner will consider the net worth of the client, the value of the assets involved and other factors when deciding on the appropriate trust structure. There are incomplete gift trust and completed gift trust options.


The incomplete gift option is called an Incomplete Gift Non-Grantor Trust. These are most commonly set up in Nevada or Delaware, although there are a handful of other states where these can be established. In Nevada, it’s called a “NING Trust” and in Delaware it’s called a “DING Trust”.

The term “NING Trust” stands for Nevada Incomplete Gift Non-Grantor Trust. Transfers to the trust are incomplete for gift tax purposes which means that there is no gift tax for any transfers to the trust. However, for income tax purposes, transfers to the trust are complete and the trust is a non-grantor trust so the trust pays all income taxes at its federal income tax brackets, except to the extent taxable income is distributed to beneficiaries of the trust.


Unlike nearly every other estate planning technique, the NING Trust requires the client to give up some control.

First, since the NING Trust can’t have any trustees who live in the client’s home state, the client can’t be a trustee and therefore loses direct managerial control over the trust assets. However, the client can retain the power to remove and replace trustees, so this loss of control is merely indirect control with the presumption being that the selected trustees will invest based on the client’s wishes.

Second, the NING Trust must have a Power of Appointment Committee (also sometimes called a Distribution Committee) made up of adverse parties initially selected by the client from the potential distributees of the trust. This Committee makes distribution decisions either (a) by unanimous vote or (b) by majority vote plus the vote of the client. The client cannot retain the power to remove and replace the Committee members, so the technique does not work well for a dysfunctional family.


The trust must be sitused in a jurisdiction that has Domestic Asset Protection Trust statutes in order to avoid being a grantor trust for income tax purposes. Nevada is generally considered the leading Domestic Asset Protection Trust jurisdiction which is why it is also the leading state for these trusts. A NING Trust is simply a non-grantor Domestic Asset Protection Trust. In addition, the chosen jurisdiction must not have a fiduciary state income tax. That excludes many of the Domestic Asset Protection Trust jurisdictions, leaving only Nevada and a small handful of other states where this technique is viable.


There are multiple alternative Completed Gift Non-Grantor Trusts. Here, just as with a NING Trust, the client must be willing to give up some control.

*Completed Gift Non-Grantor Trust for Descendants: This trust is simply a trust that doesn’t violate any of the grantor trust rules and can be set up using the laws of any state that has no state fiduciary income tax on trusts. Therefore, neither the settlor nor the settlor’s spouse is a beneficiary of this trust. The trust is generally set for the benefit of the settlor’s descendants, but other beneficiaries can be added too.

*Completed Gift Non-Grantor Trust for Spouse and Descendants: This trust can be set up using the laws of any state that has no state fiduciary income tax on trusts. But in addition to that requirement, the trust must also require any one adverse party (such as a child of the settlor) to approve any distribution. Unlike a NING Trust, it only requires any one single adverse party signature. The advantage of including the settlor’s spouse is that the settlor retains indirect access through distributions to the settlor’s spouse.

*Completed Gift Non-Grantor Trust for Settlor, Settlor’s Spouse and Descendants: The trust must be set up using the laws of a state that has a Domestic Asset Protection Trust statute and no state fiduciary income tax on trusts. Just like the spousal option described above, the trust must also require any one adverse party (such as a child of the settlor) to approve any distribution. Unlike a NING Trust, it only requires any one single adverse party signature. The advantage of including the settlor is that the settlor retains access. However, there is still an open question regarding whether the trust is includible in the taxable estate of the settlor if the settlor isn’t a resident of a Domestic Asset Protection state. To this date, after many, many years of these statutes, this author isn’t aware of even one case where such a trust was ruled to be in the settlor’s taxable estate. Therefore, the odds appear to be very favorable, but still the planner should factor in the estate inclusion risk in determining whether to use this option.


These non-grantor trust options aren’t limited to residents of states with a high state income tax rate. Many estate planners overlook the federal income tax advantages that can be obtained. The federal income tax advantages are available to residents of states both with and without a state income tax.

For example, the Power of Appointment Committee (for a NING Trust) or the Distribution Trustee (for a Completed Gift Non-Grantor Trust) can sprinkle income each year to the client’s children and grandchildren who may be in a much lower federal and state income tax bracket. However, note that these distributions in excess of the annual exclusion amount use gift tax exemption or could cause a gift tax if made from a NING Trust since the distribution completes the gift. Said gift tax issue doesn’t exist with respect to the Completed Gift Non-Grantor Trust options.


Estate planning advisors will be busier than ever helping more clients than ever with non-grantor trusts. This is necessary knowledge for all estate planners and arguably is the most important part of the estate planning process in today’s tax environment.


If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:


Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor. Steve was also named one of the Top 100 Attorneys in Worth and is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates Lawyer of the Year in 2012, 2015 and 2018 and Tax Law Lawyer of the Year in 2016 and 2020.  He can be reached at 702-341-6000, ext. 2, at or at his firm’s website,

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