What Is an ING Trust, and Does It Still Work for New Jersey, New York, and Connecticut Residents?

The short answer: an incomplete gift non-grantor trust, or ING, is an irrevocable trust formed in a state with no income tax, such as Nevada, Delaware, South Dakota, or Wyoming, and drafted so that the trust rather than its creator pays the income tax while the transfer into it is not a completed gift. If it works, a large capital gain realized inside the trust escapes the creator’s home state income tax without using any gift tax exemption, and the assets still receive a stepped-up basis at the creator’s death. Whether it works depends entirely on the creator’s home state. New York ended the technique for its residents in 2014 by taxing the trust’s income to the grantor anyway, and California followed in 2023. New Jersey and Connecticut have not enacted a comparable rule, so a properly built and administered ING remains a real option for their residents facing a large liquidity event, subject to a federal cost that has grown and an Internal Revenue Service that no longer issues rulings on the structure.

This article explains how an ING is built, why the Internal Revenue Service’s posture changed, what the trust costs in federal tax, how each of the three states treats it in 2026, and who should and should not consider one. It updates and replaces an earlier version.

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What Problem Does an ING Solve?

State income tax on a one-time gain. A New Jersey founder selling a business for 20 million dollars faces New Jersey’s top rate of 10.75 percent on income over 1 million dollars under N.J.S.A. 54A:2-1, roughly 2 million dollars of state tax on the sale. A trust that owns the shares before the sale, is taxed as its own entity, and is administered in a state with no income tax pays no state tax on the same gain, as long as the founder’s home state does not reach through the trust to tax the founder. The ING is the vehicle built for that purpose, and its two design goals pull in opposite directions.

How Is an ING Built?

Goal one: a non-grantor trust for income tax. The grantor trust rules of Sections 671 through 679 of the Internal Revenue Code treat a trust’s income as the grantor’s whenever the grantor keeps too much. Section 677(a) makes the grantor the owner of any portion whose income may be “distributed to the grantor or the grantor’s spouse” or “held or accumulated for future distribution to the grantor or the grantor’s spouse” without the consent of an adverse party. Section 674(a) does the same for any portion whose beneficial enjoyment is subject to a power of disposition exercisable “without the approval or consent of any adverse party.” Section 673(a) adds that a reversionary interest worth more than 5 percent at inception makes the grantor the owner. An ING avoids all three by routing every distribution through a distribution committee made up of beneficiaries who are “adverse parties,” defined in Section 672(a) as any person “having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.” Because a distribution to the grantor reduces what the committee members will eventually receive, their consent is adverse, and the grantor is not treated as the owner.

Goal two: an incomplete gift for gift tax. Treasury Regulation 25.2511-2(b) provides that a gift is complete when the donor “has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another.” Subsection (c) provides that a gift “is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed or ascertainable standard.” The grantor of an ING therefore keeps a testamentary power to appoint the remainder among the beneficiaries, which makes the gift incomplete, and typically also a veto over distributions to others. Subsection (e) supplies the seam between the two goals: a donor “is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse interest.” The committee members must be adverse enough under Section 672 to defeat grantor trust status, while the grantor’s retained powers keep the gift incomplete under the different standard of the gift tax regulation. Every ING lives in the space between those two definitions.

The consequence at death. Because the grantor kept a power to change who enjoys the property, Sections 2036(a)(2) and 2038(a)(1) include the trust in the grantor’s gross estate, and Section 1014(b)(9) then gives the assets a basis equal to their value at death. The ING is not an estate tax reduction tool. It is an income tax tool that, unlike a completed gift trust, preserves the step-up.

What Is the IRS’s Position?

Cautious, and no longer available on request. For a decade the Service issued private letter rulings blessing the structure. In Private Letter Ruling 201430003, released in 2014, it concluded that “an examination of Trust reveals none of the circumstances that would cause Grantor or any other person to be treated as the owner of any portion of Trust under §§ 673, 674, 676, 677, or 678,” that “the contribution of property to Trust by Grantor is not a completed gift subject to federal gift tax,” and that “upon Grantor’s death, the fair market value of the property in Trust is includible in Grantor’s gross estate.” Private Letter Ruling 202006002, released in 2020, reached the same conclusions for a trust funded with community property. Those rulings bind the Service only as to the taxpayers who requested them.

The Service has since stopped ruling. Its annual list of areas on which it will not issue letter rulings, Revenue Procedure 2026-3, includes at section 5.01(5), among “areas under study in which rulings or determination letters will not be issued until the Service resolves the issue,” the question “whether the grantor will be considered the owner of any portion of a transfer in trust under §§ 673 to 677 that is purported to be an incomplete gift under § 2511, specifically including, but not limited to, a transfer to a trust providing for distributions at the direction of a committee to the donor and the committee members either by unanimous consent of the committee members or a majority of the committee members with the consent of the donor.” That is a description of the ING distribution committee. The same entry appeared in the 2025 list. A grantor who forms an ING today does so without the comfort of a ruling and with notice that the Service is studying the exact mechanism the trust depends on.

What Does an ING Cost in Federal Tax?

More than a grantor trust would, and the difference is the price of the state savings. A non-grantor trust pays tax at compressed brackets: for 2026, under Revenue Procedure 2025-32, a trust’s retained income reaches the 37 percent bracket at 16,000 dollars, a threshold an individual does not reach until several hundred thousand dollars. Section 1411 adds the 3.8 percent net investment income tax on undistributed investment income above “the dollar amount at which the highest tax bracket in section 1(e) begins,” the same 16,000 dollars. For a single large capital gain, the federal rate on the gain is the same 20 percent plus 3.8 percent the grantor would have paid individually, so the federal cost of the structure on the sale itself is small. The compressed brackets bite on ordinary income and short-term gains retained year after year, which is why an ING is a tool for a liquidity event rather than a permanent home for an investment portfolio. Our article on whether a trust needs its own tax ID number explains the mechanics of non-grantor trust reporting.

How Does New York Treat an ING?

As if it did not exist. Tax Law 612(b)(41), enacted in 2014 and effective for tax years beginning on or after January 1, 2014 according to the Department of Taxation and Finance’s memorandum TSB-M-14(3)I, adds to a New York resident’s income, “in the case of a taxpayer who transferred property to an incomplete gift non-grantor trust, the income of the trust, less any deductions of the trust, to the extent such income and deductions of such trust would be taken into account in computing the taxpayer’s federal taxable income if such trust in its entirety were treated as a grantor trust for federal tax purposes.” The statute defines the target precisely as a resident trust that “does not qualify as a grantor trust under section six hundred seventy-one through six hundred seventy-nine of the internal revenue code” and whose funding “is treated as an incomplete gift under section twenty-five hundred eleven of the internal revenue code.” A New York grantor of a Nevada ING pays New York tax on the trust’s income exactly as if the trust were revocable. With a top rate of 10.9 percent on income over 25 million dollars under Tax Law 601, and an additional 3.876 percent for New York City residents, the statute removed the technique’s entire purpose for New Yorkers.

New York left one door open, at a price. Under Tax Law 605(b)(3)(D), a resident trust “is not subject to tax under this article” if “all the trustees are domiciled in a state other than New York,” “the entire corpus of the trusts, including real and tangible property, is located outside the state of New York,” and “all income and gains of the trust are derived from or connected with sources outside of the state of New York.” The exempt resident trust works, but the transfer into it must be a completed gift, which uses federal exemption, and the trust must be a non-grantor trust, which means the grantor cannot be a beneficiary. Tax Law 612(b)(40) then imposes a throwback: a New York resident beneficiary who later receives accumulated income from an exempt resident trust pays New York tax on it in the year of distribution. The exempt resident trust defers New York tax on income that stays in the trust or goes to non-New York beneficiaries; it does not eliminate it for a New Yorker who eventually wants the money.

How Does New Jersey Treat an ING?

New Jersey has not enacted an anti-ING statute, and its rules for taxing trusts make the structure workable for a New Jersey resident who follows them exactly.

The starting point is the definition of a resident trust. Under N.J.S.A. 54A:1-2(o), a resident trust includes “a trust, or portion of a trust, consisting of the property of a person domiciled in this State at the time such property was transferred to the trust, if such trust or portion of a trust was then irrevocable.” An ING created by a New Jersey resident is a New Jersey resident trust, and it must file a New Jersey fiduciary return. But the Division of Taxation’s instructions for Form NJ-1041 then provide that “a resident estate or trust is not subject to New Jersey tax if it: does not have any tangible assets in New Jersey; does not have any income from New Jersey sources; and does not have any trustees or executors in New Jersey,” with the fiduciary required to “file Form NJ-1041” and “enclose a statement certifying that the estate or trust is not subject to tax.” A Nevada trustee, no New Jersey real estate, and no New Jersey-source income put the trust’s undistributed gain outside New Jersey’s reach.

The Division tested the limits of that rule and lost on procedural grounds. In Residuary Trust A under the will of Kassner v. Director, Division of Taxation, the Tax Court held in 2013 that a trust “was not administered in New Jersey and the Trustee was a resident of New York,” so that “Trust A could only be taxed on the undistributed income if it owned assets in New Jersey,” and that a trust owning stock in an S corporation “does not own or hold title to the underlying assets of the corporation.” The Appellate Division affirmed in 2015 but on a narrower basis: it held that the Division’s attempt to tax the trust’s out-of-state income rested on “a change in policy that the Division did not announce to taxpayers until 2011,” which the state’s square-corners doctrine barred it from applying retroactively, and it expressly declined to decide “whether the new criterion is constitutionally permissible.” The constitutional question of how far New Jersey may reach into an out-of-state trust’s undistributed income therefore remains formally open, and the Division’s published position, in its own instructions, is the three-part test above. A New Jersey ING is built on that published position.

Three cautions for New Jersey residents. First, the trust must actually be administered outside New Jersey, with a non-New Jersey trustee making the decisions, records kept out of state, and no New Jersey real estate or business assets; the technique is for intangible property. Second, distributions from the trust to the New Jersey grantor are New Jersey income when received, so the savings are on gain that stays in the trust or goes to beneficiaries elsewhere. Third, New Jersey could legislate tomorrow as New York did in 2014. We have found no enacted or pending New Jersey bill targeting incomplete gift trusts as of September 2026, but the risk is real and the plan should assume the window may close.

How Does Connecticut Treat an ING?

Connecticut has no anti-ING provision either; its income tax chapter contains no reference to incomplete gift trusts or grantor trusts. Under General Statutes 12-701(a)(4)(D), a trust is a Connecticut resident trust if it consists of “the property of a person who was a resident of this state at the time the property was transferred to the trust if the trust was then irrevocable,” and Connecticut taxes a resident trust’s income at a flat 6.99 percent under section 12-700(a)(10)(E). Connecticut does not have New Jersey’s three-part exception in its instructions, so the Connecticut analysis is different and harder: a Connecticut resident’s ING is a Connecticut resident trust taxed on its income unless the trust’s income is apportioned away under Connecticut’s rules for nonresident beneficiaries, which is a fact-specific question for Connecticut tax counsel. Connecticut’s lower rate also shrinks the prize; a 6.99 percent saving supports the cost of an ING only for a very large gain.

Connecticut adds a consideration no other state does. It is the only state with its own gift tax, under General Statutes 12-640, computed on the same schedule as its estate tax. An incomplete gift is not a taxable gift, so the ING’s incomplete-gift design also avoids Connecticut gift tax on the funding, and a completed gift alternative would not.

What Do the Situs States Offer?

The situs state supplies the absence of income tax and the trust law that supports the structure. South Dakota’s Department of Revenue describes the state as “one of seven states that does not impose a state income tax,” and Wyoming’s official site states that Wyoming “does not possess an individual or corporate income tax.” Nevada has no income tax and, under Nevada Revised Statutes 166.170, limits actions against transfers to a self-settled spendthrift trust to two years after the transfer or six months after discovery for existing creditors, with fraudulent transfer to be shown by clear and convincing evidence; that statute is why Nevada trusts are also used for asset protection, and why the Nevada ING is the most common form. Delaware taxes trusts but allows a resident trust “a deduction against the taxable income” for income “set aside for future distribution to nonresident beneficiaries” under 30 Del. C. 1636, which produces the same result for a trust whose beneficiaries live outside Delaware. The choice among them turns on the trustee the family wants to use and on secondary features such as decanting and privacy.

What Are the Risks?

• Grantor trust reclassification. If the committee members are not truly adverse, or the grantor keeps a reversion above the 5 percent threshold of Section 673, the trust is a grantor trust, the home state taxes the income to the grantor, and the plan has cost fees for nothing. This is the question the Service has placed under study.
• Completed gifts to others. A distribution to a beneficiary other than the grantor is a completed gift by the grantor at that moment, using exemption and possibly requiring a return. The trust is designed to hold, not to distribute.
• Home state legislation. New York in 2014 and California in 2023, under Revenue and Taxation Code 17082, both acted after the technique became visible. New Jersey and Connecticut could follow.
• Administration. The trust must be run from the situs state in fact. A New Jersey grantor who directs the Nevada trustee by telephone, keeps the records at home, and treats the trust as a personal account is inviting the Division to look through it.
• Federal brackets. Income retained year after year is taxed at 37 percent above 16,000 dollars plus 3.8 percent, which erodes the state saving on anything other than a large one-time gain.
• Intangibles only. Real estate and a business operated in the home state produce home-state-source income wherever the trust sits.
• Creditors. A self-settled trust’s protection from the grantor’s own creditors depends on the situs state’s statute and on the home state’s willingness to respect it, and a transfer made with creditors in view is a fraudulent transfer everywhere.

Who Should Consider an ING?

A New Jersey resident, and in narrower circumstances a Connecticut resident, who expects a large gain on an intangible asset, most often a business sale, who does not need the proceeds for living expenses, who is willing to have the trust administered elsewhere and to treat it as a real trust, and who has been told plainly that the Service will not rule and the state may change the law. For that person, the arithmetic can be compelling: on a 20 million dollar New Jersey gain, roughly 2 million dollars of state tax, against the cost of the trust and the federal cost of retaining income.

A New York resident should not, because Tax Law 612(b)(41) taxes the income to the grantor regardless of where the trust sits. The New York alternatives are the exempt resident trust described above, at the cost of a completed gift and subject to the throwback, or a change of domicile before the sale, which New York audits closely. A resident of any state whose gain is modest, whose assets are real estate or a local business, or who will need the money should look elsewhere; our articles on family entities and basis planning with a general power of appointment describe tools that address different problems.

Plan Well. Live Better.

An ING is a precise instrument for a specific moment in a specific state, and it rewards families who plan the sale before the buyer appears. At Milvidskiy Law Group, we evaluate whether the structure fits the client’s state and the transaction, coordinate with situs-state trustees and counsel, and draft the committee and retained-power provisions that the federal and state rules require. Learn more about our estate planning services.

This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading it does not create an attorney-client relationship. The tax treatment of an incomplete gift non-grantor trust depends on its terms, its administration, the grantor’s residence, and federal and state law that is unsettled and changing; the Internal Revenue Service has declined to issue rulings on the structure, and any state may legislate against it. Private letter rulings described here bind the Service only as to the taxpayers who received them. The statutes, regulations, revenue procedures, rulings, decisions, and 2026 figures described were verified in September 2026 and should be confirmed with tax counsel before acting. The absence of New Jersey anti-ING legislation reflects our review as of that date and should be re-checked.