Two Very Big and (not so) Shocking Tax Victories For Business Owners

There’s a special kind of trust available for business owners to eliminate state-level income tax on the sale of one’s company. The essential tax characteristics of ING (incomplete-gift non-grantor) trusts are 1) trust assets remain in the person’s estate for estate tax purposes and 2) the trust is a separate taxpayer for income tax purposes.

To date, the IRS has issues over 80 favorable private letter rulings on ING trusts over the past 20 years.  But, what do the states think about this? It turns out that states fall into three camps: 1) those that tax a trust based on residency of the trust creator, 2) those that tax a trust based on residency of beneficiaries, and 3) those that tax a trust based on residency of the trustee.

Supreme courts in several states have questioned states’ abilities to tax trusts based solely on the residency of the trust creator as well as their respective state’s ability to tax trusts based solely on the residency of the beneficiaries.

See Todd Ganos, Two Very Big and (not so) Shocking Tax Victories For Business Owners, Forbes, July 20, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.