Incomplete Gift Non-Grantor Trusts: A Practical Guide to NINGs, DINGs, SDINGs, and WINGs

High-income individuals living in states with steep income tax rates have long sought lawful strategies to reduce or defer their state tax burden. Among the planning tools that have attracted significant attention in recent years is the Incomplete Gift Non-Grantor Trust, commonly known by the acronym ING. Depending on the state in which the trust is formed, the trust takes on a jurisdiction-specific label: a NING (Nevada), DING (Delaware), SDING (South Dakota), or WING (Wyoming). Each of these vehicles shares a common architecture, but the laws of the situs state—and, critically, the laws of the grantor’s home state—determine whether the strategy may deliver its intended benefits. Tax outcomes are never guaranteed, and the effectiveness of any ING trust depends on a range of facts and circumstances specific to the grantor, the trust’s terms, and the applicable legal and regulatory framework.

This article provides a general overview of the mechanics that make ING trusts structurally distinct from other irrevocable trusts, outlines the federal tax framework that governs them, and discusses certain planning considerations relevant to residents of New York and New Jersey. Nothing in this article should be construed as legal, tax, or financial advice, and no attorney-client or advisory relationship is created by reading this article.

The Core Architecture of an ING Trust

An ING trust is an irrevocable trust designed to pursue two objectives that ordinarily conflict with each other under the Internal Revenue Code. First, the trust is intended to qualify as a non-grantor trust for federal income tax purposes under IRC Sections 671 through 679, so that the trust—not the grantor—is treated as the taxpayer responsible for reporting and paying tax on trust income. Second, the transfer of assets to the trust is intended to remain an incomplete gift for federal gift and estate tax purposes under Treasury Regulation Section 25.2511-2, with the goal that the grantor neither consumes any lifetime gift tax exemption nor triggers gift tax. If the gift is treated as incomplete, the trust assets would generally be expected to remain includible in the grantor’s gross estate at death, which may in turn preserve the potential for a stepped-up basis. Whether these objectives are achieved in practice depends on, among other factors, the specific terms of the trust instrument, the composition of the distribution committee, the nature of the transferred assets, and the applicable state and federal authorities at the time of any taxable event.

This dual objective—seeking non-grantor trust status for income tax purposes while retaining enough control to prevent a completed gift—is what makes ING trusts structurally distinct from most other irrevocable trust vehicles. The grantor must thread a precise needle: relinquishing sufficient dominion over the trust to fall outside the grantor trust rules, while simultaneously retaining enough power to prevent the transfer from being treated as a completed gift. The IRS has addressed the treatment of ING trusts in a number of private letter rulings, some favorable and some less so, and practitioners should be aware that private letter rulings may not be relied upon as precedent by other taxpayers. There is no assurance that the IRS or any state taxing authority will respect the intended treatment of any particular ING trust.

The Distribution Committee: The Key Structural Feature

The mechanism designed to enable this balance is the distribution committee, the defining structural element that distinguishes ING trusts from virtually all other trust vehicles. The distribution committee is a body—typically composed of the grantor and at least two other beneficiaries—that exercises nonfiduciary control over distributions of trust income and principal. While the committee is active, the trustee generally cannot make distributions without the committee’s direction.

This arrangement is carefully engineered around the concept of an “adverse party” under IRC Section 672(a). An adverse party is a person who holds a substantial beneficial interest in the trust that would be adversely affected by a distribution to the grantor. The presence of adverse parties on the committee is intended to ensure that the grantor does not hold unilateral power to distribute income or principal to himself or herself—a condition that could trigger grantor trust status under IRC Sections 674(a) and 677(a). Crucially, the term “adverse” carries a different meaning under the gift tax rules than under the grantor trust rules, and the trust must be drafted so that committee members qualify as adverse under the income tax framework but do not meet the threshold for making the gift complete under the gift tax framework. This asymmetry is the structural heart of every ING trust, and its proper implementation requires precise drafting by experienced trust counsel.

In addition to the distribution committee, the grantor typically retains a testamentary non-general power of appointment—the power, exercisable only at death through a will, to redirect trust assets among the beneficiaries (excluding the grantor, the grantor’s estate, and the grantor’s creditors). This retained power is intended to prevent the transfer from becoming a completed gift under Treasury Regulation Sections 25.2511-2(b) and 25.2511-2(c), without triggering grantor trust status. The trust is also generally structured as a complex trust, meaning there is no requirement to distribute trust accounting income annually. However, the IRS has in at least one instance revoked a previously favorable ruling on an ING trust where certain provisions—such as a reversionary interest in the grantor upon termination of the distribution committee—were found to cause grantor trust status. Careful drafting is essential to mitigate this risk.

Jurisdictional Variations: NING, DING, SDING, and WING

The choice of situs state matters because the trust is generally intended to be domiciled in a jurisdiction that imposes little or no state income tax on accumulated trust income. Nevada, Delaware, South Dakota, and Wyoming are among the most common choices, each offering a potentially favorable combination of low or no state income tax on trust income (or, in Delaware’s case, a possible exemption for income accumulated for out-of-state beneficiaries) and enabling trust statutes. However, the mere formation of a trust in one of these states does not, by itself, guarantee any particular tax result. The trust’s situs, the residency of the trustee, the location of assets, and the applicable laws of the grantor’s home state all play a role.

Nevada’s appeal extends beyond its income tax framework. Nevada permits self-settled spendthrift trusts—also known as domestic asset protection trusts—under Nevada Revised Statutes Section 166.170, which may provide a degree of protection for trust assets from the grantor’s creditors, subject to applicable limitations and exceptions. This asset protection feature was significant in the evolution of the ING trust structure because it may help support the position that the grantor has genuinely relinquished sufficient control to fall outside the grantor trust rules. Nevada also offers certain privacy protections and permits dynasty trusts with no rule against perpetuities. South Dakota and Wyoming offer similar statutory frameworks, while Delaware trusts may be attractive for grantors who wish to work with Delaware’s well-established corporate trust industry. The degree of asset protection and other benefits varies by jurisdiction and is subject to ongoing judicial interpretation.

Planning Considerations for New York Residents

New York residents face a significant obstacle when considering ING trusts. In 2014, New York enacted legislation that effectively curtailed the use of ING trusts for state income tax reduction purposes. Under New York Tax Law Section 612(b)(41), the income of an incomplete gift non-grantor trust created by a New York resident is included in the resident grantor’s New York adjusted gross income, regardless of the trust’s situs. In practical terms, New York treats ING trusts as grantor trusts for state income tax purposes, even though the trust may be treated as a non-grantor trust under federal law. This legislation was widely understood as a direct response to the growing use of DING and NING trusts by New York residents seeking to reduce their state income tax exposure.

New York residents who wish to explore similar state income tax planning may wish to consider alternative structures, the most frequently discussed of which is the New York Exempt Resident Trust. Under New York Tax Law Section 605(b)(3)(D), a resident trust may be exempt from New York income tax if three conditions are satisfied: all trustees are domiciled outside New York, the entire corpus of the trust (including real and tangible property) is located outside New York, and all income and gains are derived from or connected with sources outside New York. Unlike an ING trust, a transfer to a New York Exempt Resident Trust generally constitutes a completed gift, which would require the use of a portion of the grantor’s federal lifetime gift and estate tax exemption. It is important to note that New York also imposes an accumulated distribution regime under which previously untaxed trust income may be carried out to a New York resident beneficiary and subjected to New York tax in a subsequent year. This regime may materially reduce the anticipated state income tax benefits of such a trust.

New York residents with significant unrealized gains or income-producing portfolios should be aware that ING trusts are generally not a viable vehicle for New York state income tax reduction under current law. Those who have not fully utilized their federal exemption and who are prepared to make a completed gift may wish to evaluate the Exempt Resident Trust with qualified counsel, paying careful attention to the three-prong exemption test, the accumulated distribution rules, and the broader estate planning implications of a completed gift. No particular outcome should be assumed, and the interaction of these rules with a taxpayer’s specific circumstances may produce unexpected results.

Planning Considerations for New Jersey Residents

New Jersey presents a different landscape. Unlike New York and California, New Jersey, as of the date of this article, has not enacted legislation that treats ING trusts as grantor trusts for state income tax purposes. As a result, a properly structured and administered ING trust may be recognized as a separate taxpaying entity under New Jersey law, and New Jersey may not assert income tax on undistributed, non-New Jersey-sourced trust income and gains. Given New Jersey’s top marginal income tax rate of 10.75%, the potential state income tax savings may be meaningful—particularly for taxpayers anticipating a large liquidity event such as the sale of a closely held business. However, this favorable treatment is a matter of current law and administrative practice, and there is no assurance that it will continue indefinitely.

To illustrate the general concept, consider a hypothetical married New Jersey resident who anticipates a $15 million gain from the sale of stock in a closely held company. If the stock were held in a properly structured NING trust before the sale, and the trust retained the proceeds rather than distributing them to the grantor, the intended result, under current New Jersey law and assuming all nexus requirements are satisfied, would be that the gain is not subject to New Jersey income tax. In this hypothetical scenario, the trust would file its own federal income tax return and would be expected to pay federal income and net investment income taxes, while Nevada would impose no state-level tax on the trust. However, this outcome is not guaranteed, and distributions from the trust back to the grantor would likely be subject to New Jersey income tax. Moreover, the planning calculus is not simply one of state tax savings: the federal cost of compressed trust income tax brackets (reaching the top 37% rate at approximately $15,200 for 2025) and the 3.8% net investment income tax must be weighed carefully against any anticipated state tax reduction. In many cases, the net benefit may be smaller than initially expected, and in some circumstances the federal cost may exceed the state benefit.

New Jersey residents should also be aware that the state determines trust nexus based on multiple factors, including the domicile of the fiduciary, the location of trust assets, and the situs of trust administration. A trust created by a New Jersey resident may not be subject to New Jersey tax if it has no New Jersey-domiciled trustees, no New Jersey-situs assets, and no New Jersey-source income—but this determination is fact-specific and should be confirmed with qualified New Jersey tax counsel. Practitioners should draft the trust instrument and select fiduciaries with these nexus factors carefully in mind, understanding that the New Jersey Division of Taxation may scrutinize ING arrangements, and that future legislative or administrative changes could alter the analysis.

Risks, Limitations, and the Evolving Regulatory Landscape

ING trusts are complex instruments that require meticulous drafting, careful implementation, and ongoing compliance. In addition, transfers to an ING trust made in anticipation of known or reasonably foreseeable creditor claims may be subject to challenge under applicable fraudulent transfer laws. The following risks and limitations, among others, should be considered before establishing any ING trust. Distributions back to the grantor must be approved by the distribution committee and should generally be limited to an ascertainable standard to provide a safeguard against reclassification as a grantor trust. Distributions to other beneficiaries may constitute completed gifts, potentially consuming the grantor’s remaining lifetime exemption or triggering gift tax. The strategy is generally viable only for intangible property—such as investment portfolios and business interests—and not for real property or tangible assets located in the grantor’s home state, which would remain subject to source-state taxation.

The IRS has not issued comprehensive guidance on ING trusts, and the private letter rulings that exist are fact-specific, may not be relied upon by other taxpayers, and have in certain cases been revoked or modified. There is a meaningful risk that the IRS could issue regulations, revenue rulings, or other guidance that would alter the tax treatment of ING trusts prospectively or even retroactively. At the state level, the regulatory environment continues to shift. New York acted in 2014 and California followed in 2023. Other high-tax states, including New Jersey, may consider similar legislation in the future. Any taxpayer considering an ING trust should engage experienced trust, tax, and estate planning counsel who can evaluate the interplay between federal tax law, the trust’s situs state statutes, and the grantor’s home state tax rules—and who can monitor legislative and regulatory developments on an ongoing basis.

Finally, ING trusts should not be viewed in isolation. The decision to establish an ING trust involves trade-offs—including loss of direct control over transferred assets, ongoing administrative costs, the risk of adverse tax reclassification, and the potential for legislative change—that must be weighed against the anticipated benefits in the context of the taxpayer’s overall financial and estate plan.

DISCLAIMER: This article is provided for general informational and educational purposes only. It does not constitute, and should not be construed as, legal, tax, financial, or other professional advice. No attorney-client, fiduciary, or advisory relationship is created by the publication of or access to this article. The information presented reflects the authors’ understanding of applicable law and practice as of the date of publication and may not reflect subsequent changes in law, regulation, or administrative guidance. Tax laws are complex, frequently change, and are subject to differing interpretations. The application of any planning strategy depends on facts and circumstances specific to the individual taxpayer, and no particular tax outcome is guaranteed. Readers should not act or refrain from acting on the basis of this article without first consulting qualified legal, tax, and financial advisors who can evaluate their specific situation. Any hypothetical examples are illustrative only and do not represent actual client situations or predict specific outcomes.