Using a WING to Avoid State Income Tax on a Sale of Assets

Holland & Hart - Fiduciary Law Blog

Holland & Hart - Fiduciary Law Blog

One strategy for a client who wants to avoid state income tax on a sale of assets is to utilize a WING, a Wyoming Incomplete Gift, Non-Grantor trust (“WING”).  Certain other states allow ING trusts, but this blog post refers specifically to the ING trust in Wyoming, or the WING.  It is a self-settled irrevocable trust that is designed, as the name suggests, for the assets gifted to the trust to be an incomplete gift for transfer tax purposes.

There are a few basic rules that are important for the WING to work.  It must be established in a jurisdiction that has enacted legislation for domestic assets protection trusts.  Wyoming has enacted legislation allowing such a trust.  In addition, the jurisdiction must not have a state fiduciary income tax, which Wyoming does not.  Other state statutes must allow the settlor to retain an inter vivos power of appointment, which Wyoming does.

To be an incomplete gift, the settlor must retain a non-fiduciary, inter vivos limited power of appointment over the principal for HEMS (health, education, maintenance and support).  It also requires the settlor to retain a broad, testamentary non-general power of appointment.

There are also specific requirements for distributions by a committee.  Such distributions by committee in Wyoming will be the subject of an upcoming blog post.  For more information about the requirements for these trusts, take a look at PLR 201310002.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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