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Tips from the Pros: “ING” Trusts Aren’t For Everyone

Charles A. Redd discusses when an incomplete gift, non-grantor trust is a worthwhile strategy.

The so-called “ING” trust1 has played an important role in estate planning for the last several years.2 The acronym “ING” stands for “incomplete [gift], nongrantor,” and the unique purpose of an ING trust is to enable avoidance of state income tax on transactions occurring inside the trust without causing the settlor to be considered as having made a taxable gift when the settlor funds the trust. Using an ING trust may be an attractive technique for an individual who owns an asset the individual wishes to sell but which, if sold, would generate a large capital gain. If, instead of selling the asset, the individual conveys the asset to a properly designed ING trust and the trustee sells the asset, state income tax on the sale may be avoided. The transfer to the trust may avoid gift tax consequences as well.

ING Trust Basics

For an ING trust to succeed in its state income tax elimination objective, at minimum, it must be established in a jurisdiction whose laws won’t impose income tax on the trust.3 Also, it mustn’t be a “grantor trust” for federal income tax purposes.4 The path to achieving nongrantor trust status, while the settlor retains powers over the trust sufficient to cause the settlor’s transfer to the trust not to be a completed gift for federal gift tax purposes, is very narrow and can be treacherous.5 Assuming the settlor’s funding of the trust doesn’t constitute a completed gift, it follows that the value of the trust’s assets will be included in the settlor’s gross estate for federal estate tax purposes.6

Although a settlor’s retaining a beneficial interest in an irrevocable trust isn’t necessary to cause the settlor’s transfers to the trust to be incomplete gifts, nearly all ING trust settlors want to be a discretionary beneficiary of their ING trusts. An often sought-after ancillary benefit of an ING trust is that it may facilitate asset protection if set up in a state where it’s possible for the assets of an irrevocable trust of which the settlor is a beneficiary not to be subject to claims of the settlor’s creditors.7

ING Trust Details

What makes an ING trust different from most other types of trusts is that its structure is grounded in an intricately designed discretionary distribution power-sharing arrangement between the settlor and a distribution committee consisting of at least two individuals other than the settlor and the settlor’s spouse but which may also include the settlor. A mechanism is set forth in the trust instrument to ensure that, throughout the settlor’s life, the distribution committee remains intact.8

During the life of an ING trust settlor, discretionary distributions are typically made by an independent trustee9 among the settlor, the settlor’s spouse and the settlor’s descendants but only as directed by the distribution committee, the settlor or both. The governing instrument contains detailed rules for distributions. A contemporary ING trust instrument will usually prescribe distribution rules closely resembling the following:

  • Income or principal may be distributed to any beneficiary (other than the settlor’s spouse) as determined by a majority of the distribution committee, other than the settlor or the settlor’s spouse, acting in a non-fiduciary capacity, with the written consent of the settlor;
  • Income or principal may be distributed to any beneficiary as determined unanimously by the distribution committee, other than the settlor or the settlor’s spouse, acting in a non-fiduciary capacity; and
  • Principal may be distributed to any beneficiary (other than the settlor or the settlor’s spouse) as determined by the settlor, acting in a non-fiduciary capacity, for the health, education or support of any one or more of such beneficiaries.

In addition, the settlor of an ING trust holds a testamentary power of appointment that can usually be exercised in favor of anyone except the settlor’s creditors, the settlor’s estate and the settlor’s estate’s creditors.

In Private Letter Ruling 202017018,10 the Internal Revenue Service ruled as follows with respect to an ING trust having features materially identical to those summarized above:

  • Neither the settlor nor any member of the distribution committee will be considered the grantor or owner of the trust for income tax purposes;11
  • The settlor’s transfer of property to the trust will be considered not to be a completed gift for gift tax purposes;12
  • Discretionary distributions won’t be considered gifts for gift tax purposes by any distribution committee member;13 and
  • A distribution committee member’s gross estate for estate tax purposes won’t include the value of any trust property.14

Not For Everyone

At first blush, it might appear that ING trusts should be regarded as an indispensable tax-minimization tool for any client who needs or wants to sell an asset having a large, unrealized gain. Such a conclusion is unfounded, however, for several reasons.

First, there’s no judicial decision that supports the propositions that ING trusts are nongrantor trusts and that transfers to such trusts are incomplete gifts.15 The efficacy of ING trusts hangs on PLRs. For some clients, that may be good enough. For others, it won’t be.16

Second, while it’s true the IRS has issued numerous PLRs sanctioning ING trusts over the last 20 years,17 the IRS has lately become increasingly apprehensive about ING trusts. Last year, the IRS indicated it wouldn’t issue ING trust rulings with respect to ING trusts with somewhat narrow characteristics.18 Even more recently, the IRS completely put the brakes on all ING trust rulings.19 All but the most aggressive clients will think twice before proceeding with the creation of ING trusts until this environment changes.

Third, the law-making bodies of states that believe tax revenue may be slipping away because of ING trusts have taken, or are starting to take, action. The New York State Legislature enacted a statutory revision in 2014 stating, essentially, that the taxable income of a New York settlor of an ING trust shall include the taxable income of the trust.20 The California Franchise Tax Board has asked the California State Legislature to consider passing similar legislation.21

Fourth, it’s of utmost importance to remember that, even if a trust is established in and under the laws of a state that doesn’t impose its income tax on the trust and works flawlessly as a nongrantor trust, state income tax on trust transactions may nevertheless not be avoided. A critical element of ING trust planning is that the trust must avoid being characterized as a resident, for income tax purposes, of the jurisdiction where the settlor resides. Otherwise, although the ING trust may not be subject to income tax by the laws of the jurisdiction where it was established and operates, it will be subject to income tax in the settlor’s home jurisdiction, and so the ING trust will serve no purpose at all. The income tax statutes of numerous jurisdictions22 treat any irrevocable trust as a resident trust for income tax purposes if the settlor was a resident of the jurisdiction when the trust was created.23 For any resident of these jurisdictions, setting up an ING trust is a useless exercise.24  


1. “ING” (incomplete [gift], nongrantor) trusts created in Delaware, Nevada and Wyoming are often referred to, respectively, as “DING,” “NING” or “WING” trusts.

2. The Internal Revenue Service began issuing ING trust rulings in late 2001. The wellspring of ING trusts was Private Letter Ruling 200148028 (Nov. 30, 2001). The IRS has issued numerous favorable PLRs since then. See Grayson M.P. McCouch, “Adversity, Inconsistency, and the Incomplete Nongrantor Trust,” 39 Va. Tax Rev. 419 (Aug.  5, 2020), University of Florida Levin College of Law Research Paper No. 20-33,

3. There are several such jurisdictions depending on the circumstances. The laws of the following states never impose income tax on trusts: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming. The laws of the following jurisdictions don’t impose income tax on a nongrantor trust if the settlor wasn’t a resident when it was created: Alabama, Arkansas, Connecticut, Delaware (if a majority of the trustees aren’t Delaware residents for more than half the year or there are no Delaware beneficiaries), District of Columbia, Illinois, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and Wisconsin. See Steve Oshins, 6th Annual Non-Grantor State Income Tax Chart, July 2020, The cost of trust administration in a given jurisdiction should also be considered.

4. Because, generally, if the trust is a grantor trust under federal law, it will be a grantor trust under state tax law, and so its income tax consequences won’t be eliminated; they’ll just be shifted to the settlor. Grantor trust status is ignored, however, under Pennsylvania law.

5. The state-of-the-art of ING trusts has evolved considerably since they were first conceived. See, e.g., Chief Counsel Advice 201208026 (Feb. 24, 2012), which set new parameters for determining whether a settlor’s transfers to an irrevocable trust are completed gifts, and PLR 201642019 (June 20, 2016), revoking PLR 201426014 (Feb. 24, 2014), in which the IRS ruled that an ING trust settlor had a reversionary interest in the trust because the settlor could gain access to the trust property if the distribution committee were to disband.

6. See Internal Revenue Code Sections 2035-2038.

7. E.g., Alaska, Connecticut, Delaware, Missouri, Ohio, South Dakota and Wyoming.

8. To avoid the settlor’s having a reversionary interest triggering IRC Section 673(a). See PLR 201642019 (June 20, 2016), revoking PLR 201426014 (Feb. 24, 2014). 

9. Often, but not always, a corporate fiduciary.

10. PLR 202017018 (April 24, 2020), the one and only ING trust ruling given by the IRS in 2020 and the most recent such ruling to date.

11. The IRS so ruled under IRC Sections 673, 674, 676, 677, 678 and (for so long as the trust remained a domestic trust) 679. The IRS reserved judgment regarding whether, in any taxable year, the settlor would be considered the trust’s owner under IRC Section 675. 

12. The IRS so ruled under Treasury Regulations Sections 25-2512-2(e) and (c) and 25.2514-3(b)(2) and Estate of Sanford v. Commissioner, 308 U.S. 39 (1939).

13. Citing IRC Section 2514(b), the IRS ruled that distribution committee members wouldn’t hold general powers of appointment (GPOA).

14. Citing IRC Section 2041(a)(2), the IRS ruled that distribution committee members wouldn’t hold GPOAs.

15. See McCouch, supra note 2.

16. See IRC Section 6110(k)(3), providing that a “written determination,” which includes PLRs, may not be used or cited as precedent.

17. Supra note 15.

18. See Revenue Procedure 2020-3, Section 3.01(93) (Jan. 2, 2020).

19. Rev. Proc. 2021-3, Sections 5.01(9) and (17) (Jan. 4, 2021).

20. N.Y. Tax Law Section 612(b)(41) (McKinney 2018). The effect of this legislation is to treat an ING trust created by a New York resident as a grantor trust for New York state income tax purposes. Presumably, a New Yorker could set up and fund a nongrantor trust with a completed gift in one of the many states whose laws wouldn’t impose income tax on the trust and obtain the same state income tax avoidance result as an ING trust is expected to produce.

21. The Franchise Tax Board’s “Legislative Proposal C,” unveiled on Nov. 10, 2020, would treat any ING trust established by a California resident as a grantor trust for California income tax purposes.

22. District of Columbia, Illinois, Maine, Maryland, Michigan, Minnesota, Nebraska, Oklahoma, Pennsylvania, Vermont, Virginia, West Virginia and Wisconsin. See Oshins, supra note 3.

23. The laws of several other states, that is, Alabama, Connecticut, Delaware, Missouri, Ohio and Rhode Island, impose their income tax on any irrevocable trust created by a state resident if, in a given tax year, one or more beneficiaries of the trust are residents of the state. See Oshins, supra note 3.

24. But cf. Linn v. Department of Revenue, 2013 IL App. (4th) 121055 (Dec. 18, 2013), and Fielding v. Comm’r, 916 N.W.2d 323 (Minn. July 18, 2018), aff’g, 2017 Minn. Tax LEXIS 28 (Minn.T.C. 2017), cert. denied __ U.S. __ (2019), WL 2649873 (June 28, 2019).

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