Pub. 10 2020 Issue 2

14 www.azbankers.org INGs: The Rising Star Of Directed Trusts T HE INCOMPLETE NON-GRANTOR TRUST (ING) HAS become an increasingly popular planning tool that has tremendous flexibility to address a variety of succession planning, wealth management and estate issues. The name itself exhibits its flexibility when used as either an Incomplete Non- Grantor trust or as an Intentional Non-Grantor trust. An ING trust reaches its full potential when located in South Dakota, which allows for self-settled trusts, directed trusts, distribution trust advisors, no state income tax and no state capital gains tax. How ING trusts work In the past, when the federal estate tax exemption was $5 million or less, the preference was to make an in- complete gift to the trust so as not to use exemption and avoid filing a gift tax return. This incomplete gift gave the ING its name and its popular usage in years with more limited exemptions. The current $11.5 million exemption presents a different opportunity to take advantage of the ability to move significant assets off the grantor’s balance sheet. A gift of the full exemption amount is made to a trust and it is intentionally structured as a non-grantor trust. This amount can then grow in the trust and not be exposed to estate tax upon the death of the grantor. A simplified calculation of the growth of the trust value shows an additional $26,000,000 can be left to heirs or charity, by using this planning technique: • $11,500,000 trust value • 2% annual dividend/interest income • 5% capital appreciation • 20 years • $38,000,000 What are the benefits of ING trusts? If a gift is accomplished with assets generating passive income that is not distributed to the grantor in their home state, we have the further benefit of limited home state income tax. South Dakota does not tax the income of trusts, providing significant value to those living in high tax home states. By Nate Birkholz, Bankers Trust