Sorry, California: INGs Are No Longer an Option—How Will This Impact You?

tax forms on table with black coffee mug on the sideCalifornia Governor Gavin Newson recently signed legislation that treats incomplete gift nongrantor trusts (INGs) as grantor trusts for state income tax purposes. Retroactive to January 1, 2023, Californians who created and funded an ING will owe state income taxes on any taxable income earned by the ING.

While closing the ING loophole marks the end of an era for California residents who used these trusts to lower their tax burden, it does not mean the end of state tax avoidance strategies entirely. Alternatives include establishing residency outside of California and using completed gift nongrantor trusts.

Note: Any technique to save on state income taxes should be discussed with an experienced tax professional and attorney to avoid potential penalties.

What is an ING?

Trusts can generally be divided into two categories under federal tax law: grantor and nongrantor.

  • A grantor is an individual who creates and funds a trust.
  • A grantor trust is a trust in which the grantor maintains enough control over the assets (such as money and property) that are transferred into the trust, so that the grantor is treated as the trust’s owner for income-tax purposes. Income generated by the grantor trust is taxable to the grantor on their personal tax return.
  • A nongrantor trust is any trust that is not considered a grantor trust. Nongrantor trusts are irrevocable and treated as separate, taxable entities with their own tax identification number. Applicable state and federal taxes are paid from the trust itself.

Incomplete nongrantor trusts are complex instruments that thread the needle between grantor and nongrantor trusts.

For both grantor and nongrantor trusts, transfers to the trust are treated as a completed gift or an incomplete gift for estate- and gift-tax purposes under the Internal Revenue Code.

  • Federal law considers a gift to be completed when the donor no longer has “dominion and control” over it.[1]
  • A gift to a trust isincomplete if the grantor retains some control over the trust assets.

Making an incomplete gift transfer to an ING requires walking a narrow line. Typically, this involves the grantor retaining certain powers, such as limited powers of disposition.

The California Franchise Tax Board (CFTB) notes that, when a grantor can to successfully walk this tightrope, they “retains sufficient control over the assets to be treated as not having made a completed gift of the assets” while also “being treated as having retained insufficient control over the assets to be considered the owner of the assets for income tax purposes.”[2]

What are the benefits of using an ING?

Most states tax their residents’ investment income (e.g., dividends and interest) earned from intangible assets such as bonds and stocks. INGs provide a way for individuals to avoid state income taxes on these forms of income by transferring assets to an ING trust and leaving them there. This is accomplished by creating and funding an ING in a state with no personal income tax—most commonly Delaware, Nevada, and Wyoming. INGs in these states are known, respectively, as DINGs, NINGs, and WINGs.[3]

It is estimated that half the country’s wealthiest people use trusts to avoid taxes. If a California resident sets up a NING, for example, and the trust sells assets subject to $10 million in capital gains tax, the trust would not be subject to California’s 13.3 percent income tax, potentially saving the taxpayer $1.3 million.

Avoiding state income taxes is the primary objective of ING trusts, say experts.[4] But INGs have other grantor benefits, including the following:[5]

  • Preserving their gift tax exclusion amount for future transfers or allowing transfers when they have no remaining exclusion at the time of the ING transfer
  • Avoiding federal gift tax liability
  • Ensuring trust assets are included in the grantor’s estate and receive a basis adjustment (usually a step up in basis) upon the grantor’s death

INGs are a vehicle for avoiding state income taxes—not federal income taxes. While they can avoid the federal gift tax, according to the state of California, an ING trust “is subject to federal income tax and taxable regardless of the grantor’s state of residency or where the taxable income of the ING trust is sourced for state purposes.”[6]

California Second State to Pass Anti-ING Legislation

The CFTB announced late in 2020 that it intended to introduce legislation ending the use of ING trusts. But it was not until the 2023 legislative session that California amended its personal income tax laws to require that net income derived from ING trust assets be included in a grantor’s gross income and subject to California income tax. CFTB estimates that its anti-ING law will result in a $17 million annual revenue gain for California.[7]

California’s Senate Bill (SB) 131 is modeled on a similar New York amendment enacted in 2014. Shortly before SB 131 passed and was signed into law, the Center on Budget and Policy Priorities called for states to follow New York’s lead and “put an end to the ING scheme,” which it says deprives states of significant tax revenue.[8] 

Implications of SB 131 for California ING Grantors

SB 131 does not require grantors to terminate INGs. However, ING income must be included in the gross income of California resident ING grantors for their state income taxes in tax year 2023 and beyond.

The new law applies to all INGs, even those created before the law’s effective date of January 1, 2023. Only a limited exception is provided for ING trust income that is contributed to a charitable organization.[9]

In short, Golden State residents can no longer use ING trusts in states such as Nevada to lower their California income tax liability. Some have suggested that there could be a legal challenge to SB 131. Barring that, Californians who used INGs as an estate planning tool prior to the law’s passage have a few options.

The simplest solution is to move out of California to a state that has no state income taxes or laws that allow ING trusts to save on state income taxes. High taxes were already among the top reasons why many high-wealth individuals have fled California.[10] SB 131 could be the straw that breaks the camel’s back for more wealthy Californians.

Those that want to continue enjoying the California sunshine while minimizing state income taxes might consider transferring assets from an ING trust to a completed gift nongrantor trust that is not subject to the new law. This strategy has been utilized in New York after the state passed its anti-ING legislation in 2014.

Time to Change Gears

INGs were not the first strategy to avoid state income taxes, and they will not be the last. From a California perspective, however, INGs are no longer a viable strategy for lowering state income taxes. Our attorneys can help you explore ways to transfer wealth while minimizing taxes and avoiding tax evasion penalties. For advice on next steps in the wake of California’s anti-ING law, please contact us.

[1] James Ozello, When a Gift Is Not a Gift, J. of Accountancy (Aug. 1, 2001),

[2] Franchise Tax Bd., Legislative Proposal C Executive Summary, Taxation of Income from an Incomplete Gift Non-Grantor (ING) Trust, (last visited Nov. 29, 2023).

[3] Justin T. Miller, California Says No to NINGs and Don’t to DINGs, (Aug. 2, 2023),

[4] Steve J. Oshins, Esq., AEP, NING Trusts for California Residents: “Rumors of My Death Have Been Greatly Exaggerated”, Ultimate Estate Planner (June 2, 2021),

[5] Lindsay R. DeMoss D’Andrea, Incomplete Gift Non-Grantor Trusts: How Kaestner Highlights the Importance of Planning for State Income Tax, Amer. Bar. Ass’n, (last visited Nov. 29, 2023).

[6] Id. at 2.

[7] Franchise Tax Bd., Legislative Proposal C Executive Summary, Taxation of Income from an Incomplete Gift Non-Grantor (ING) Trust, (last visited Nov. 29, 2023).

[8] Don Griswold & Michael Mazerov, States Should Follow New York’s Lead and Shut Down Tax-Avoiding “ING Trusts”, Ctr. on Budget and Policy Priorities (Jan. 30, 2023),

[9] State of California, Franchise Tax Bd., Incomplete Gift Non-Grantor (ING) Trusts, (last visited Nov. 29, 2023).

[10] George Skelton, Column: California’s population is on the decline, and high-income earners have joined the exodus, L.A. Times (Mar. 23, 2023),