According to a recent story in Bloomberg Business, Nevada is one of a handful of states to which wealthy Americans, heavily taxed in their home states, are moving significant assets. Delaware and Alaska are also targets for individuals who want to avoid high income taxes. That wealth is coming in from states like New York, where the tax rate is 12.7 percent for income exceeding $1 million, and California, which charges 13.3 percent for income exceeding $1 million.
The strategy is known as a Nevada Incomplete Non-Grantor Trust. The NING (or DING in Delaware) gives residents of other states a way of trading in their state’s high income tax rate for a foreign state’s low or zero rate. It’s off-shoring within U.S. borders. The way it works is simple: a grantor establishes a trust in the state and then contributes an income-generating financial asset, such as a stock portfolio, to the trust. The grantor’s home state cannot tax that income, nor is it taxed in Nevada. Another scenario: the owner of a company may be ready to sell, but wants to avoid income tax on the proceeds. He sets up a NING and contributes his stock in the company so the NING becomes the owner. When the NING sells the company, the proceeds are not taxable. A New Yorker transferring a $10 million company to a trust in Nevada could avoid $1.27 million in state income tax.
Needless to say, tax collectors in those high tax states are not looking kindly upon these trusts, which seem to serve no other purpose than tax avoidance. However, the IRS in a private letter ruling has given the NING its blessings. Nevada reports that trusts in the state hold $18 billion, up from $8 billion in 2008, which would seem to indicate that more wealthy Americans now consider NINGs an essential part of their estate plan.
Tyrell Law, PLLC welcomes out-of-state clients who have questions about estate planning in Nevada. To learn more, call us at 702.382.2210 or contact our Las Vegas office online.