Incomplete Gift Non-Grantor Trust Traps
Incomplete gift non-grantor (ING) trusts occupy an uncomfortable but useful middle ground in advanced trust planning. They’re intended to be separate income taxpayers, while preserving enough retained control to prevent a completed gift for federal gift tax purposes. That combination can be valuable, particularly in state income tax planning, but it’s not a natural fit. The trust must avoid the grantor trust rules of Subpart E, while the grantor must retain sufficient strings to keep the gift incomplete.
The issue isn’t whether ING trusts work. They do, but only if the structure successfully navigates several competing tax objectives. A provision that helps preserve control and incomplete gift treatment may create grantor trust exposure, …
