James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Avoiding State Income Taxation on Portfolio Assets
Author: James F. McDonough
Date: June 26, 2013
Key Contacts
Back
It is not difficult to construct a trust that will permit an individual to avoid income taxation on portfolio assets in the jurisdiction where he or she resides. The trust is drafted in such a way as to avoid having the grantor of the trust receiving income distributions. The client may, at some point in the future, receive a distribution of the untaxed income from the accumulation or principal in the Trust. If the individual resides in a high tax jurisdiction, the savings equals the state income taxes that would otherwise be paid. The States of Delaware and Nevada are popular locations for such trusts known as Delaware Incomplete Non-Grantor Trusts (DINGS) and Nevada. Incomplete Non-Grantor Trusts (NINGS).
The State of Delaware will not tax a DING if there is no beneficiary who is a resident. Delaware permits the DING to take an income tax deduction for income that is accumulated for eventual distribution to a beneficiary who is a non-resident of Delaware. Because a DING is a non-grantor trust for income tax purposes, the grantor will not be taxed in his or her state of residence on the income earned by a DING. This is the pillar on which a DING rests.
Nevada does not impose a state income tax on individuals or trusts; therefore, it does not require NINGs to use an accumulation deduction to avoid tax. Nevada trust companies and local attorneys are proponents of the strategy and it is most useful for residents of the high tax State such as California.
Assume a wealthy individual can save $30,000 in state income taxes and can reinvest the savings at 6%. After 20 years, the amount saved would grow to over $1,000,000 with reinvestments.
Grantors are not prevented from being permissible beneficiaries of principal. Remember, once income is taxed and not distributed, it becomes principal and can be distributed for health, maintenance and support. Clearly, any portfolio income not being consumed for support may benefit from this strategy.
A recent private letter ruling clarified some tax issues that existed with respect to DINGS and NINGS and we now expect renewed activity as the result.
- Practices: Tax and Trusts & Estates
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Author: Brian D. Spector
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Author: Christopher D. Warren
Businesses Are Facing Financial Headwinds—A Practical Guide
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
Author: Scott H. Novak
President Trump's Termination of Member Gwynne Wilcox
On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]
Author: Matthew F. Mimnaugh
Breach of Contract Explained: Types and Consequences
Breach of contract disputes are the most common type of business litigation. Therefore, nearly all New York and New Jersey businesses will likely have to deal with a contract dispute at least once. Understanding when to file a breach of contract lawsuit and how long you have to sue for breach of contract is essential […]
Author: Brittany P. Tarabour
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide
Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]
Author: Christopher D. Warren
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.