Can you reduce income and estate taxes with a trust called ING?

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INGs are an excellent income and estate tax planning tool. But these are complex trusts and you have to beware of the pitfalls.

Counselor phones are r-ING-ing off the hook with questions about ING. Taxpayers seem to like the hot spot du jour. Now I like a good one ING as much as the next tax professional, but wouldn’t it make more sense to brief your planning team on your situation and let them recommend the best planning acronym for you? INGs are intentionally non-granting trusts (or non-granting irrevocable trusts). Why are they so cool? For more information on the tax implications of grantor and non-grantor trusts, see a video here.

They can avoid state income tax (although New York can be a little finicky). This is a good thing to do given the new state and local tax (SALT) limitations, as you might not get a state tax deduction (although you might not have benefited from a tax deduction anyway due to the alternative minimum tax).

ING can allow you to obtain deductions for charitable donations. The new rules doubling the standard deductions eliminate charitable deductions for most people.

ING might give you bigger QBI 199A deductions (boy, we tax guys have more acronyms than a box of Alphabet cereal). This is the new 20% deduction for eligible business income for intermediate businesses. An ING-er wanted to offer slices of his authorized practice to a series of INGs (why have one ING if you can have several!). But the IRS has gotten tough on whether non-granting trusts, including INGs, will really succeed in this type of planning in proposed regulations that include anti-abuse rules and strict rules limiting the use of multiple non-granting trusts. This ING-er not only missed the proposed settlements, but can she even legally transfer an interest in such a licensed company? As they say, the tax devils are in the tax details.

INGs also sound in different flavors. Should it be a completed ING donation to benefit from the temporary tax exemption or a more typical ING incomplete donation? The heart of ING is a committee including opposing parties (ie tax people) who must approve the distributions you get. Who could fill this role that you are comfortable naming? Most INGs are formed and administered in states that allow self-established trusts (a trust that you form and are a beneficiary of, or if you prefer yet another acronym, a DAPT – National Asset Protection Trust). There are about 18 such states. But is it necessary? Many, perhaps most advisers, suggest yes (so that creditors cannot access the assets of the trust, making it a grantor trust for income tax purposes), but there is, as for the most complex planning, different opinions.

And while we discuss, there are other approaches to non-granting trusts and even non-granting trusts that might serve you better.

All planning, whatever the acronym, ING or otherwise, must be part of an overall plan. Another one ING-er called insisting that he needed an ING to save state income tax, but was absolutely unwilling to discuss estate planning. Eh? How is it possible?

ING-ing might be a good idea, but when you r-ING your tax advisor, do not ask for an ING, but review your overall plan with your team and see what r-ING is true for you.

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