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NINGs and California Residents

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This is a part in a series of articles I have written on various types of irrevocable trusts.

What is a NING?

A Nevada Incomplete Gift Non-Grantor trust (NING) is an irrevocable trust built in Nevada, and is popular among those individuals living in high-income tax states seeking to reduce their state income tax liability, or those facing a large capital gain on the sale of an asset. The NING is a trust designed to grow wealth and protect assets utilizing Nevada’s laws.  

The basic principles of the NING are simple. First, the grantor of the trust transfers the asset or brokerage account with the income tax liability into the NING. After the transfer into the NING, the grantor is no longer responsible for the income tax liability because a NING is a trust that is its own income tax payer, and if the trust is set up in Nevada where there is not a state income tax, the income earned on the assets in the NING avoids the grantor’s home-state income tax.

Dissecting the NING

The NING trust can better be understood by dissecting its acronym:

Nevada – A NING trust is drafted under Nevada’s laws. It is a self-settled trust, meaning you are the creator of the trust. In a typical NING, you are also the primary beneficiary (although this can be adjusted if it’s set up as a completed gift version). Nevada is one of nineteen states that allows for a “self-settled” Asset Protection trust.

Incomplete Gift – Transfers to the NING are set up so that they are considered incomplete gifts, which means that you have held onto the assets as far as federal gift and estate taxes are concerned. At death, the assets in the NING are included in your taxable estate and, while subject to estate taxes, will receive a step-up in basis for income tax purposes. Because the gift is incomplete, you are permitted to transfer a large value of assets to the NING without being subjected to any gift tax. From a state income tax planning perspective, this is a good result. However, if you are also trying to reduce estate taxes, then a completed gift version should be considered.  

Non-Grantor – A non-grantor trust means the trust (and not you) pays income taxes on an annual basis for the assets in the NING trust. However, if the trust distributes income to the trust beneficiaries, then they will pay tax on that income. Nevada does not have a state income tax, so if the trust is a Nevada trust, potentially no state income taxes will need to be filed.


In a typical NING, the client would set it up for his benefit and the benefit of his descendants and possibly other family members. If the client is married and is transferring community property assets into the trust, the client and the client’s spouse would both be Grantors of the trust. This trust typically will be structured with an Investment trustee, a Distribution Trustee and a Distribution Committee. 


California will seek to tax a non-grantor trust if there are any California fiduciaries. For this reason, California trustees should be avoided. Further, because the trust needs to be sitused in Nevada, a Nevada trust company should be named as the Distribution Trustee. During the client’s lifetime, the Distribution Trustee serves more as an administrative or jurisdictional trustee in order to qualify for protection under Nevada Law.

The client would need to think about who they will want to serve as the Investment Trustee of the NING.  The Investment trustee will be signing all transactional documents on behalf of the trust, and will be listed as the signor on all trust accounts. Additionally, the Investment Trustee makes all of the investment decisions for the NING. A trusted friend or family member may serve as the initial Investment Trustee, but this should not be a person who lives in California (or a handful of other states) because this would cause the trust to be taxed in those states. If the client cannot come up with a trusted person to serve in that role who lives in one of the acceptable states, the Nevada trust company can also serve as the Investment Trustee for a higher annual fee usually.

Distribution Committee

The Distribution Committee (DC) needs to be made up of at least three adverse parties, but some attorneys will recommend four if possible.  Adverse parties refers to individuals who are discretionary beneficiaries of the trust and whereby any distributions to any other beneficiaries would be adverse to their interests. Neither the client nor their spouse can serve in this role.  

The DC members can be from almost any state, including California, and can include children, parents, siblings, nieces/nephews, or friends. If any of the DC Members are minor children, a guardian will need to be named on their behalf until they reach age 18. The guardian cannot serve in any other role of the trust however, but the guardian can live in any state, including California. There needs to be one guardian named for each minor child; in other words, one person cannot serve as the guardian to multiple minor children for the NING. 

Choosing the DC members is an extremely important decision point because the client does not  retain the power to remove and replace the DC members, and the DC members control distributions.


After the NING is funded, there are two ways to make distributions from the NING:  (1) Unanimous vote of the DC members; or (2) Majority vote of the Committee plus the Grantor(s). If either of these are achieved, then a distribution can be made through the Distribution Trustee.

NING Trust Example

A NING works especially well if a client lives in a high-income tax jurisdiction and is either looking to eliminate state income taxes or is selling an asset that will result in a large capital gain. 

For example, Mary is a California resident and is looking to sell her company that has a basis of $500,000 and a fair market value of $15,000,000. Typically, there would be a potential capital gain of $14,500,000. Assuming Mary is in the highest state and federal tax bracket, she would owe taxes of almost $3,500,000 million (23.8%) at the Federal level and roughly $2,000,000 (13.3%) in California. If Mary lived in Nevada, she would have saved approximately $2,000,000  in state income taxes. Mary could also relocate to a state like Nevada before selling her business in order to avoid state income taxes, but establishing clear residency is more difficult and time-consuming than most people think. If that is not an option for Mary, the other option would be to set up a NING trust.

The NING strategy allows Mary to transfer her shares of the business to a Nevada trust. The Investment Trustee would sell the stock and potentially avoid $2,000,000 in state income taxes. (Furthermore, if the company is eligible for Qualified Small Business Stock under IRC Section 1202, federal capital gains may also be avoided or reduced). Following the sale of the company, the proceeds could then be further invested from within the NING. It is recommended that the investments do not include California-sourced income. As long as the investments remain in the NING, they will not generate a state income tax liability for Mary. Instead, there would be only federal income taxes due. If Mary moves to a state like Texas, without state income taxes, before she starts taking distributions from the trust, she can avoid state income taxes altogether. Mary may otherwise choose to use the NING as a legacy preservation vehicle for her children. But distributions are made out to Mary, and if she is a California resident, then she will pay state income taxes on the distributions.

Which Assets Work Well with a NING Trust?

A NING works well if it owns intangible assets, such as shares in a business, or a brokerage account. The trust cannot own tangible assets or assets sourced to the state in which the taxpayer resides. For example, if the asset is physically located in the high-income tax state (source income), the strategy will not work. Sometimes, tangible assets can be converted to intangible assets.

Who Should Create a NING Trust?

The following questions may assist in identifying who a NING trust may be ideal for:

Are you in the top income tax bracket in a high-income tax state like California?

Are you planning on selling a business or stocks and are looking at a large capital gain? 

Are you contemplating moving to a state with no state income tax? Or do your beneficiaries live in a no income tax state?

Are you already subject to an estate tax, in which case you may want to consider a completed gift NING?

Different Flavors

While a NING Trust typically refers to an incomplete gift, practitioners may need to draft a completed gift version of the NING to minimize estate tax liability as well as state income taxes. In that case, the rules regarding who can be a beneficiary, how distributions are approved, and whether there needs to be a Distribution Committee may vary substantially. Therefore, it is critical that you work with a qualified attorney who has experience in creating such complex trusts.

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