Of DINGs and NINGs: Both Very Cool Things

How to eliminate state income taxes on investment income and the sale of low basis assets

By Robert G. Alexander

Key Takeaways:

  • A DING will shift the state income taxation of investments and the sale of low basis assets from a state with a high state income tax to a state with no income tax.
  • Fourteen PLRs, including five in 2013, have approved this powerful technique.
  • DINGs must be carefully planned and should follow the road map set out in the 2013 PLRs.
  • Compounded over time, DINGs provide enormous tax savings, which dramatically increase a client’s long-term portfolio rates of return.

Beginning in 1997 with the Delaware Qualified Disposition in Trust Act, a special trust technique popularly known as the Delaware incomplete non-grantor (“DING”) trust gained popularity among astute investors in locales with high state income taxes, such as New York and California. A DING is a way to shift the ownership and state income taxation of investments and low basis assets from high state income tax states to states with no income taxes on trust income, specifically Alaska and Delaware. By 2007, the IRS had issued nine private letter rulings (PLRs) approving this technique. Interestingly, most of these rulings pertained to Alaska self-settled trusts, but the DING name stuck as the popular acronym in many states in which the technique was used. Later in 2007, however, the IRS began to question certain of the concepts involving DINGs, and the technique went into hiatus until recently.

In this year alone, the IRS has issued five new PLRs that provide a detailed road map for successfully implementing this very useful wealth-planning technique. In the April 2013 edition of The Estate Analyst, attorney Robert L. Moshman writes “…the timing of [these PLRs] coordinates well with a rising stock market, bountiful Federal estate tax exclusions in the wake of the American Taxpayer Relief Act and the advent of domestic asset protections tax havens that have no state income tax and permit self-settled trusts.” In an article titled, “New Private Letter Ruling Breathes Life into Nevada Incomplete Gift Non-grantor Trusts,” Peter Melcher and Steven J. Oshins state that the new PLRs are “…great news for taxpayers wishing to use a very powerful tax-planning strategy.”

Melcher and Oshins also note that taxpayers in high-tax states who incur large unrealized capital gains [such as a low basis business that the taxpayer wished to sell or a low basis block of stock] or a regular stream of ordinary income from an investment portfolio have always wanted to find a way to eliminate or minimize their state tax exposure without giving up the economic benefit of the underlying asset. Over time, such a strategy could produce dramatic results.

In order to accomplish the taxpayer’s goals, the trust must be set up to be:

  • A self-settled trust to give the grantor the ability to receive distributions;
  • A non-grantor trust so that the grantor is not taxed on the trust income at high home state tax rates;
  • One that gives the grantor both lifetime and testamentary special powers of appointment to direct disposition of the trust property; and
  • Designed so that the transfer of the portfolio to the trust is an incomplete gift, includable in the grantor’s estate at death.

The five 2013 PLRs all have the same fact patterns, and the IRS ruled that the DING successfully accomplished each of the taxpayer’s goals. Altogether, there are now 14 PLRs approving this powerful technique.

Getting started with DINGs

To establish a successful DING, the grantor creates an irrevocable trust of which the grantor and his or her issue are discretionary beneficiaries. The trust is established in a state that has no income tax and allows self-settled trusts. Presumably the trust will be established in Nevada, which has special self-settled trust statutes and perhaps the best asset protection statutes in addition to having no state income tax and no state death taxes (hence the name NING!).

The trust should have a corporate trustee, who is required to distribute income or principal at the direction of a distribution committee or distribute principal upon direction from the grantor. The distribution committee consists of the grantor and each of his or her children. There must always be at least two “eligible individuals” serving as distribution members. Three alternative methods are provided for distributions directions:

(1) Grantor consent power—distribute income or principal upon direction of a majority of the distribution committee members with the written consent of the grantor.

(2) Unanimous member power—distribute income or principal upon direction by all distribution committee members other than the grantor.

(3) Grantor’s sole power—distribute principal to any of the grantor’s issue (but not to the grantor and not income) upon direction from the grantor as the grantor deems advisable in a nonfiduciary capacity to provide for the health, maintenance, support and education of his or her issue. Distributions can be directed in an unequal manner among potential beneficiaries.

In the Moshman article attorney William D. Lipkind, who obtained the favorable 2013 ruling, opined that “by domesticating [a DING] in a non-tax jurisdiction (such as Nevada) and causing the trust (not the grantor) to be taxed on the trust income, one eliminates taxable income being attributed to the grantor for both his or her federal and domicile state income tax purposes on the assets transferred to the trust and the income not currently distributed therefrom back to the grantor. This could be of extraordinary interest in high state tax jurisdictions, such as New York, New Jersey and California, and of no interest in non-tax jurisdictions like Florida.”

Are DINGs right for your clients?

The factors to consider when exploring the value of a DING include an analysis of whether or not the state income tax savings will be offset by higher federal income tax on trusts and administrative costs. Attorney William D. Lipkind opines that considering the existence of the alternative minimum tax and the cap on itemized deductions, the savings on the state income tax should substantially exceed the federal cost of losing the income tax deduction on the state income taxes. Further, Lipkind argues that the ongoing administrative cost of a DING should be no greater than the ongoing administrative cost of any trust; another benefit of a DING may be the chance of income shifting. If distributions are made to a family member who is in a low income tax bracket, even federal income taxes can be reduced.

DINGs can be useful both in the context of a transfer of a substantial portfolio and the transfer of a substantial single asset, such as a low basis family business. For example, a $20 million portfolio that is generating ordinary income and capital gains at merely a 3 percent annual level generates $600,000 per year of taxable income. If the state and local income tax is 10 percent, then the savings amounts to $60,000 per year (reduced by administrative expenses). Compounded over time, this is an enormous tax savings, which dramatically increases the long-term portfolio rate of return.

A final benefit of a DING is that the increased applicable exclusion amounts going into effect in 2013 might make these trusts popular for taxpayers with more modest wealth. In the past, taxpayers using these trusts wanted the transfers to be incomplete gifts in order to avoid payment of gift tax or use of applicable exclusion amounts. Now, taxpayers who don’t expect to have a taxable estate may want gifts to be incomplete so they can obtain a basis step-up on the assets at death.


Approved by 14 PLRs, properly planned DINGs are a powerful technique that can eliminate state income tax on investment income and the sale of low basis assets.

About the Author

Robert G. Alexander, JD, LLM, (414-698-4933) is the president of Alexander Law SC in Milwaukee, Wisconsin, where he concentrates his practice on wealth transfer, asset protection and family business planning. Alexander is the president-elect of the National Association of Estate Planners & Councils and is on the board of directors of the Estate Planning Law Specialist Board.