Non-Grantor Trusts

A non-grantor trust files its own return, pays its own tax, and, for planning purposes, counts as its own taxpayer. That single fact powers several distinct strategies: an additional Section 1202 exclusion cap per trust, potential avoidance of high-state income tax on trust-held assets when the trust is sited in a no-tax state and has no resident fiduciaries or source income, and a vehicle for completed gifts that removes future appreciation from your estate.

The trade-offs, stated plainly

• Compressed brackets. Trusts hit the top 37% federal bracket at roughly $16K of retained income. Distribution planning, or holding non-income-producing growth assets, manages this.
• Completed gifts are complete. Assets transferred are no longer yours. Structures can preserve indirect benefit (a spouse as beneficiary, an independent trustee with discretion), but the giver must genuinely give.
• State law risk. States have moved aggressively against perceived abuse, most notably around incomplete-gift non-grantor (ING) trusts, which New York and California now effectively tax on a look-through basis. Structures that relied on incomplete gifts are largely dead in those states; completed-gift designs remain viable.
• Administration is real. A trust with no economic substance, ignored formalities, or the grantor treating assets as his own will not survive scrutiny.

Our role

We project the income tax, transfer tax, and investment outcomes of proposed trust designs, coordinate with drafting counsel on situs and trustee selection, and manage trust portfolios in coordination with the family's overall allocation.