James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Avoiding State Income Taxation on Portfolio Assets
Author: James F. McDonough
Date: June 26, 2013
Key Contacts
Back
It is not difficult to construct a trust that will permit an individual to avoid income taxation on portfolio assets in the jurisdiction where he or she resides. The trust is drafted in such a way as to avoid having the grantor of the trust receiving income distributions. The client may, at some point in the future, receive a distribution of the untaxed income from the accumulation or principal in the Trust. If the individual resides in a high tax jurisdiction, the savings equals the state income taxes that would otherwise be paid. The States of Delaware and Nevada are popular locations for such trusts known as Delaware Incomplete Non-Grantor Trusts (DINGS) and Nevada. Incomplete Non-Grantor Trusts (NINGS).
The State of Delaware will not tax a DING if there is no beneficiary who is a resident. Delaware permits the DING to take an income tax deduction for income that is accumulated for eventual distribution to a beneficiary who is a non-resident of Delaware. Because a DING is a non-grantor trust for income tax purposes, the grantor will not be taxed in his or her state of residence on the income earned by a DING. This is the pillar on which a DING rests.
Nevada does not impose a state income tax on individuals or trusts; therefore, it does not require NINGs to use an accumulation deduction to avoid tax. Nevada trust companies and local attorneys are proponents of the strategy and it is most useful for residents of the high tax State such as California.
Assume a wealthy individual can save $30,000 in state income taxes and can reinvest the savings at 6%. After 20 years, the amount saved would grow to over $1,000,000 with reinvestments.
Grantors are not prevented from being permissible beneficiaries of principal. Remember, once income is taxed and not distributed, it becomes principal and can be distributed for health, maintenance and support. Clearly, any portfolio income not being consumed for support may benefit from this strategy.
A recent private letter ruling clarified some tax issues that existed with respect to DINGS and NINGS and we now expect renewed activity as the result.
- Practices: Tax and Trusts & Estates
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Rule 26 Expert Discovery: When an Expert Witness Uses AI, Is It Discoverable?
Case law following the 2010 amendments to Federal Rule of Civil Procedure 26 offers guidance on how courts are likely to address whether an expert witness’s AI records are subject to discovery. Key Takeaways Rule 26 Expert Discovery After the 2010 Amendments This article addresses the question courts and lawyers have faced in recent cases: […]
Author: Chris Seelinger
How Expert Witness AI Use Ends Up in Discovery
“Show how 3M is 0% at fault.” The absurd tale of how a 350-page ChatGPT history for 3M’s expert witness was produced during a deposition is more likely than you think. It’s an inevitable trend, and an unsettled question for federal courts as experts make generative AI part of their workflow. Key Takeaways Expert Witness […]
Author: Chris Seelinger
The Screenshot Problem: Why Nothing Is Really Private Anymore
Screenshots have changed the risks of electronic communications. The screenshot problem is that messages intended for one person or a small group can be copied, forwarded, preserved, and ultimately presented to opposing counsel, regulators, journalists, customers, or a jury. Businesses should recognize that a truly private digital conversation is increasingly unreliable and ensure their policies, […]
Author: Sean M. Pena
BESS Project Agreements: Allocating Risk Among Developers, EPC Contractors, and Equipment Suppliers
Developers, engineering, procurement, and construction (EPC) contractors, and equipment suppliers each play a critical role in completing a BESS project. However, when equipment costs rise, deliveries are delayed, or regulations change, determining who bears the financial consequences can become contentious. Well-drafted project agreements are essential to sound risk allocation. Key Takeaways This article is Part […]
Author: Nicholas Wall
IP Infringement: What Steps Can You Take If You're Affected?
IP infringement occurs when someone uses your intellectual property without your permission or beyond the scope of the permission you granted. Common examples of IP infringement include copying a product’s patented features or using a trademarked logo in a way that is likely to confuse consumers about the source or affiliation of goods or services. […]
Author: Michael Mietlicki
Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next
When facing public allegations of wrongdoing, companies should not let the speed of the public conversation dictate the speed of an investigation. An investigation designed to confirm a preferred narrative rather than establish the facts can create serious problems later, particularly if litigation, regulatory scrutiny, or employment claims follow. Key Takeaways When public allegations surface […]
Author: Sean M. Pena
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.