A South Dakota Incomplete Non-Grantor Trust (ING Trust) is often used as a strategy to save state and local income taxes. The ING Trust established in South Dakota combines South Dakota’s no state income tax with its top tier self-settled statute (i.e. DAPT). In addition, it provides South Dakota’s top rated trust, privacy and tax laws.
The ING Trust is a non-grantor trust for income tax purposes (i.e. the trust is responsible for tax liabilities) while also deemed an incomplete gift for transfer tax purposes (i.e. the trust remains in the grantor’s estate, which provides flexibility for the grantor..
The ING Trust is a great strategy when funded with appreciated assets or property that is anticipated to appreciate. Additional opportunities include when the grants anticipates the sale of a closely held business, sale of a family business or the sale of an appreciated concentrated stock position. If correctly structured, a grantor can minimize state and local income taxes that otherwise would have been paid by the grantor related to these transactions.
Regarding the mechanics of the planning technique, the ING Trust appoints a South Dakota resident or trust company as Trustee. This allows the trust to be considered as domiciled in South Dakota. Further, the trust can be established with the grantor, grantor’s spouse, descendants and/or family members as beneficiaries. Typically a distribution advisor or appointment committee consists of the grantor and adverse parties (i.e. other trust beneficiaries). In addition, the grantor retains a limited testamentary power of appointment as well as a lifetime power of appointment or distribution power. The grantor can additionally serve as the investment advisor of the ING Trust.