Can You Cut Income And Estate Taxes With A Trust Called An ING?
Martin Shenkman Contributor Forbes.com
Adviser phones are r-ING-ing off the hook with questions about INGs. Taxpayers seem to love the hot item of the day. Now, I love a good ING as much as the next tax geek, but wouldn’t it make more sense to tell your planning team about your circumstances and let them recommend the best planning acronym for you? INGs are intentionally non-grantor trusts (or Irrevocable Non-grantor Trusts). Why are these so cool? For more background on tax implications of grantor and non-grantor trusts see a video here.
They can avoid state income tax (although New York can be a bit finicky). That’s a good thing to do considering the new state and local tax (SALT) limitations since you might not get a deduction for state tax (although you might not have benefited from a tax deduction anyhow because of the alternative minimum tax).
INGs might permit you to obtain charitable contribution deductions. The new rules doubling standard deductions eliminate charitable deductions for most folks.
INGs might provide you with bigger 199A QBI deductions (boy, we tax geeks have more acronyms than a box of Alphabet cereal). That’s the new 20% qualified business income deduction for flow-through businesses. One ING-er wanted to gift slices of her licensed practice to a series of INGs (why have one ING if you can have several!). But the IRS has come down harsh on whether non-grantor trusts, including INGs, will really succeed in this type of planning in proposed Regulations that include anti-abuse rules and harsh rules limiting the use of multiple non-grantor trusts. That ING-er not only missed the proposed regulations but can she even legally assign an interest in such a licensed business? As they say, the tax devils are in the tax detail.
INGs also chime in different flavors. Should it be a completed gift ING to use the temporary estate tax exemption or a more typical incomplete gift ING? The heart of the ING is a committee including adverse parties (that means people in tax speak) who must approve distributions you get. Who might fulfill that role that you are comfortable naming? Most INGs are formed and administered in states that permit self-settled trusts (a trust you form and for which you are a beneficiary, or if you prefer yet another acronym a DAPT – domestic asset protection trust.) There are about 18 such states. But is that necessary? Many, perhaps most advisers, suggest yes (so that creditors cannot reach trust assets making it a grantor trust for income tax purposes), but there are, as with most complex planning, different opinions.
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