Incomplete Gift Non-Grantor Trusts (NING and DING): An Honest Analysis

How it works

The grantor transfers assets, often low-basis stock before a sale, to an irrevocable trust with a trustee in a state that does not tax trust income (Nevada gave the NING its name, Delaware the DING, Wyoming the WING). Two drafting goals have to be met at the same time:

• Incomplete gift. The grantor keeps powers, typically a testamentary limited power of appointment and a consent power over distributions, so the transfer is not a completed gift under Treas. Reg. 25.2511-2. No gift tax exemption is used, and the assets stay in the grantor's estate (so they can get a step-up at death).
• Non-grantor trust. Distributions require approval of a distribution committee of beneficiaries who are adverse parties under Section 672(a), so the trust is not a grantor trust and files its own return.

When the trust sells the stock, the trust, not the grantor, reports the gain. If the trust is not a resident of the grantor's state, that state historically had no hook to tax gain on intangibles accumulated in the trust.

The state crackdown

• New York (2014). Tax Law section 612(b)(41) adds the income of an incomplete gift non-grantor trust to the New York resident grantor's income as if it were a grantor trust (TSB-M-14(3)I).
• California (2023). SB 131, signed July 10, 2023, added Revenue and Taxation Code section 17082. For taxable years beginning on or after January 1, 2023, the income of an incomplete gift non-grantor trust is included in the California grantor's gross income as if the trust were a grantor trust. A 2025 amendment (SB 376) added a narrow exception for a trust that elects to be taxed as a California resident trust and distributes at least 90 percent of its distributable net income to charity. California also can tax resident beneficiaries when accumulated income is later distributed (section 17745).
• Real estate never worked. Gain on real property is sourced to the state where it sits. A Nevada trust selling a California building owes California tax as a nonresident, NING or not.

Other states have their own trust residency rules; some define a resident trust by where the grantor lived when it was created. The analysis is state by state.

Who it fits, and who it does not

Possible fit: a resident of an income tax state that has not adopted an anti-NING rule and does not tax the trust as a resident trust, selling stock or other intangibles with a large gain, who is comfortable with a committee controlling distributions.

Does not fit: California residents for tax years beginning in 2023 or later and New York residents (the income is taxed to them anyway); anyone selling real estate or a business whose gain is sourced to their state; sellers who need the proceeds personally soon after the sale.

Worked example

Assumptions (site tax engine, 2026 law, labeled): California residents, married filing jointly, $200,000 of other ordinary income, a $5,000,000 long-term capital gain on the sale of company stock in 2026. California figures use the latest California table the engine carries.

The $631,339 California piece is what a NING was designed to remove. Before 2023 a Nevada trust selling the stock might have kept it out of California. For taxable years beginning on or after January 1, 2023, section 17082 puts the trust's income back on the California grantor's return, so the state tax remains, and the family has added trust setup and administration costs. Federal tax does not go down in any version: the trust pays federal tax at trust rates, and trusts reach the top income and capital gains brackets and the 3.8 percent net investment income tax at a small fraction of the income levels that apply to individuals.

IRS stance and audit risk

From 2013 the IRS issued dozens of private letter rulings concluding that particular NING and DING designs were incomplete gifts and non-grantor trusts. Each ruling binds only the taxpayer who requested it. In Rev. Proc. 2021-3, the IRS put both questions (grantor trust status under Section 671 and incomplete gift status under Section 2511, specifically including distribution committee designs) on its list of areas under study in which it will not rule. The same items remain on the list in Rev. Proc. 2026-3 (Internal Revenue Bulletin 2026-1, section 5.01). In plain terms: no new rulings since 2021, and no published guidance either way.

These trusts are not listed transactions or transactions of interest. The risks are drafting errors that make the trust a grantor trust or the gift complete, and state challenges. Is a NING legit? It is a lawful structure, but for California and New York residents it no longer does what it was built to do.

Costs and fees

Attorney drafting in the trust's state and the grantor's state, an independent trustee in the trust state (annual fees often based on assets), distribution committee administration, federal and state fiduciary returns every year, gift tax returns reporting the incomplete transfers, and periodic legal reviews as state laws change.

How it compares with a Section 453 installment sale

A Section 453 installment sale spreads federal and state tax over the years the buyer pays, which can lower the total rate paid when it keeps more gain out of top brackets. It does not try to change which state taxes the gain. A NING tries to change the state answer and does nothing for federal tax. For California and New York residents, the realistic paths to a lower state bill are spreading the gain, offsetting it, or a genuine change of residency before the sale.

Frequently asked questions