For two decades, the Incomplete Non-Grantor (ING) trust was among the most recommended state-income-tax workarounds in advisor playbooks. Founders in California, New York, and other high-tax states moved equity into Nevada- or Delaware-sitused ING trusts, kept the assets in their estates for transfer-tax purposes, and avoided their resident-state income tax on the trust’s investment gains, including, for the right cap-table setups, QSBS exit proceeds.

That door is now closed for California and New York residents. California’s SB 131 (effective January 1, 2023) treats INGs as grantor trusts for state income-tax purposes. New York closed the same door a decade earlier, in 2014. Two of the most economically important states for venture-backed founders have decoupled from the federal ING treatment.

But the door is still open for residents of most other states, including Oregon, Pennsylvania, Alabama, Mississippi, Hawaii, and now Maine, where state-level QSBS conformity is the live planning question for 2026 exits. This guide walks through what an ING trust is, when it works, when it doesn’t, the QSBS interactions, and what to do if you’re a California or New York founder reading this and realizing the structure your advisor proposed three years ago no longer functions as intended. (Your advisor likely wasn’t wrong at the time. The law changed underneath the structure.)

What is an ING trust?

An ING (Incomplete Non-Grantor) trust is a hybrid structure that combines two tax classifications most people think are mutually exclusive:

  • For federal income tax purposes, it’s a non-grantor trust. The trust is its own taxpayer. It files Form 1041, has its own EIN, and pays tax on its own income, meaning, critically, it’s generally treated as a separate taxpayer under §1202 for QSBS purposes.
  • For federal transfer-tax purposes, the gift to the trust is incomplete. The grantor retains enough rights over the trust (typically distribution-direction powers exercised through a power-holder mechanism) that the gift isn’t “complete” under §2511. No taxable gift now, no use of lifetime gift exemption.

The result is a trust that:

  1. Pays its own income tax (so income earned inside the trust isn’t taxed to the grantor)
  2. Doesn’t trigger a gift-tax event at funding (so the grantor doesn’t consume lifetime exemption)
  3. Stays in the grantor’s estate for estate-tax purposes (the gift never “completed,” so the assets are still in the estate at death)

INGs sitused in Nevada are called “NING trusts” (Nevada INGs). Sitused in Delaware, “DING trusts.” Sitused in Wyoming, “WING trusts.” Same structure, different state of administration.

The point of the situs choice is state income tax. Nevada, South Dakota, and Wyoming have no state income tax at all. Delaware does have an income tax and does tax trusts, but it exempts trust income accumulated for beneficiaries who aren’t Delaware residents, which is why DINGs work. If the trust is properly administered in one of these states, with a local trustee, no source income from the grantor’s home state, and the right administrative posture, the trust can escape the grantor’s home-state income tax even though the assets are still in the grantor’s estate.

How the structure works (the mechanics)

Three drafting elements make an ING trust work:

1. The distribution committee. Distributions from the trust are controlled by a “distribution committee” composed of adverse parties, typically the trust beneficiaries themselves. The grantor doesn’t have unilateral control over distributions, which is what avoids grantor-trust status under IRC §677.

2. The grantor’s retained power. The grantor retains a limited testamentary power of appointment over the trust corpus. That retained power is what makes the gift “incomplete” for §2511 purposes: the grantor hasn’t fully relinquished dominion and control.

3. The independent state-resident trustee. The trust is administered by a trustee resident in Nevada, Delaware, Wyoming, or South Dakota. The trustee handles all administrative actions in the chosen state. This is what gives the trust its tax-favorable situs for state income-tax purposes.

Drafted correctly, the trust threads three statutory regimes simultaneously: non-grantor for income tax, incomplete for gift tax, and state-resident in a tax-favored jurisdiction.

The QSBS angle

ING trusts became particularly interesting for founders because of one mechanic: an ING is a non-grantor trust for federal income tax purposes, which generally makes it a separate taxpayer under §1202.

A separate §1202 taxpayer = a separate $15M (post-OBBBA) or $10M (pre-OBBBA) QSBS exclusion bucket.

So in theory, a founder in California with $30M of QSBS gain could:

  • Gift QSBS to a NING trust well before exit
  • The trust passes the §1202 holding-period requirement via tacking (IRC §1202(h))
  • At exit, the trust claims its own $15M federal exclusion
  • The trust pays no California income tax because it’s Nevada-sitused
  • The founder doesn’t owe California income tax on the trust’s gain because the trust is its own taxpayer

That was the playbook. For the right facts, it worked. It also caught the attention of state legislatures.

For the underlying non-grantor trust mechanics, see our non-grantor trust guide. For QSBS stacking generally, see our QSBS trust stacking guide.

The California closure: SB 131

California closed the ING door in 2023.

SB 131 was signed by Governor Newsom on July 10, 2023, retroactive to January 1, 2023. The bill added §17082 to the California Revenue and Taxation Code, which treats INGs as grantor trusts for California state income-tax purposes if the grantor is a California resident.

The practical effect:

  • A California-resident founder funds a NING trust with QSBS today
  • For federal purposes, the trust is non-grantor and is its own §1202 taxpayer (this part still works)
  • For California purposes, the trust is treated as if the grantor still owns it, so the founder owes California income tax on the trust’s income, including any QSBS gain at exit
  • The structure’s federal QSBS stacking benefit is preserved. The structure’s state tax-avoidance benefit is destroyed.

For California founders, the ING is no longer a meaningful state-tax planning tool. It can still serve federal estate-planning and QSBS-stacking purposes, but the resident-state income-tax avoidance, the original reason most founders set them up, is gone.

There is a narrow charitable exception: if 90% or more of the trust’s distributable net income (DNI) is distributed to a charitable organization, the trust can elect to be treated as a non-grantor trust for California purposes via a Fiduciary Income Tax Return election. This exception applies to charitable lead annuity trust (CLAT) and similar structures, not to typical family-benefiting INGs.

The New York closure: a decade earlier

New York closed the ING door in 2014.

New York’s 2014–15 budget legislation enacted NY Tax Law §612(b)(41), treating incomplete-gift non-grantor trusts as grantor trusts for New York income-tax purposes when the grantor is a New York resident. The mechanism is identical to California’s: New York decoupled from federal grantor/non-grantor classification specifically for INGs.

The practical effect is the same as California’s, and the reach is broader than most founders expect: the rule applies retroactively to tax years beginning on or after January 1, 2014, with a grandfather carve-out only for ING trusts liquidated before June 1, 2014. New York-resident founders with INGs don’t get state income-tax avoidance on the trust’s income. The federal classification stands; the state classification overrides it.

New York’s anti-ING rule is older and more entrenched than California’s. There’s no equivalent of the California charitable carve-out. New York’s treatment applies uniformly to INGs with NY-resident grantors.

Where INGs still work

Despite the California and New York closures, INGs can still work for residents of most other states. Three founder scenarios where the structure remains useful:

Founders in non-conforming states without anti-ING rules. Pennsylvania, Alabama, Mississippi, Hawaii, Oregon (post-SB 1507), and now Maine (which decoupled from the federal QSBS exclusion in its April 2026 supplemental budget; confirm the effective tax year with counsel) are non-conforming for QSBS purposes but haven’t passed anti-ING legislation. A founder in any of those states can generally still use a NING or DING to avoid state income tax on QSBS gain at exit. The federal QSBS exclusion is preserved by the non-grantor classification; the state-tax avoidance is preserved by the state-of-residence’s continued conformity to federal ING treatment.

Founders considering a residency move. A California or New York founder who moves residency to a state without anti-ING legislation (and is no longer treated as a domiciliary of the originating state) can set up an ING after the move. Residency moves for state-tax purposes are notoriously fact-specific and audit-prone, but for a founder genuinely relocating, the structure becomes available again.

Charitable INGs in California. As noted above, California’s SB 131 exception applies to INGs that distribute 90%+ of DNI to charity. Founders combining QSBS planning with substantial charitable giving can still use an ING-CLAT structure in California, though the planning is significantly more complex than a vanilla NING.

The DING distinction

Within the ING category, the most common situs is Delaware (DING), for reasons unrelated to QSBS planning. Delaware has some of the most developed trust law in the United States, a deep bench of fiduciary trust companies, and a line of favorable IRS private letter rulings that historically gave practitioners comfort with the ING structure.

Nevada (NING) is the close second and is often the choice for QSBS-focused planning because Nevada also has favorable directed-trustee statutes (which support the kind of investor-led trust administration that QSBS-focused founders often want), no state income tax, and strong asset-protection law. For QSBS-focused founders specifically, Nevada is the situs we see most frequently.

South Dakota (SDING) is increasingly competitive for ultra-high-net-worth structures because of South Dakota’s combination of dynasty-trust friendly law, no state income tax, and modern administrative regulations. Wyoming (WING) is the value play: similar tax treatment, somewhat less developed trust infrastructure.

For most QSBS-focused founders, the choice is between Nevada and Delaware. The decision usually comes down to (a) which trust-company relationships are already in place and (b) whether the founder wants the directed-trustee structure Nevada offers.

Alternatives for CA and NY founders

If you’re a California or New York founder reading this and realizing the ING structure your advisor proposed in 2022 no longer works, you have three alternatives:

1. Full completed-gift non-grantor trust. Fund a standard non-grantor trust with a completed gift instead of an incomplete one. The gift uses lifetime exemption (currently $15M per individual / $30M for married couples, permanent under OBBBA), but the trust is genuinely non-grantor for both federal and state purposes. CA and NY anti-ING rules don’t apply because the gift is complete. For the underlying mechanics, see our non-grantor trust guide.

2. SLANT structure for married founders. A Spousal Lifetime Access Non-Grantor Trust gives the family indirect access to the gifted assets via the spouse while preserving non-grantor status. The gift is complete (lifetime exemption used) but the spouse-beneficiary structure preserves practical family liquidity. See our SLANT guide and our IDGT vs NGT vs SLANT comparison.

3. Residency move before structuring. This is the most drastic option, and often the most effective. Founders genuinely moving residency to a no-income-tax state or to a state without anti-ING legislation can fully escape the resident-state tax issue, including for QSBS proceeds. Residency moves require careful documentation and are audit-prone in CA and NY, where revenue agencies frequently challenge purported relocations.

For the broader state-tax picture, see our state-by-state QSBS conformity guide.

Common ING mistakes

Three patterns account for most of the failed ING structures we see:

  • Funding a NING/DING as a California or New York resident after the anti-ING effective dates. California: tax years from January 1, 2023 (SB 131 is retroactive to that date). New York: tax years beginning on or after January 1, 2014, unless the trust was liquidated before June 1, 2014. If you’re a resident of either state and your advisor proposed an ING covered by those rules, the state-tax planning doesn’t work. The structure might still preserve federal §1202 stacking, but the state-tax benefit, the original reason for the structure, is gone.
  • Inadequate Nevada/Delaware administration. An ING that’s nominally Nevada-sitused but administratively run from the grantor’s home state can be re-attributed to the home state for tax purposes. The trustee has to actually do trustee things in the situs state (meetings, decisions, paperwork) and document them. “We have a Nevada trustee” isn’t enough if every actual administrative decision happens in California.
  • Forgetting the source-of-income rules. Even a properly administered NING can be subject to home-state tax on income sourced to the home state. California, for example, taxes income from California real estate or California business operations regardless of trust situs. For investment income from publicly-traded securities or QSBS held by the trust, source rules are friendlier, but founders should run the source analysis with their CPA before assuming all trust income escapes home-state tax.

The bottom line

Three takeaways:

  1. ING trusts are non-grantor for federal income tax and “incomplete” for federal gift tax. They don’t use lifetime exemption at funding, but they pay their own income tax at the situs state’s rate: zero in Nevada, Wyoming, or South Dakota, and effectively zero in Delaware for income accumulated for non-Delaware beneficiaries.
  2. California (SB 131, 2023) and New York (2014) have closed the door on resident-state-tax avoidance via INGs. For founders in those states, the ING is no longer a state-tax planning tool except in narrow charitable structures.
  3. The ING can still work for founders in other non-conforming states. Pennsylvania, Alabama, Mississippi, Hawaii, post-SB-1507 Oregon, and now Maine residents can generally still use a NING or DING to avoid state-level erosion of their federal QSBS exclusion. For California and New York founders, the path forward is a completed-gift non-grantor trust, a SLANT, or a residency move.

Promissory builds completed-gift non-grantor trusts and SLANTs sitused in Nevada for QSBS-focused founders. For founders in non-CA/NY states who want to use the ING structure specifically, we coordinate with Nevada and Delaware trust counsel. If you have founder stock and want to model the state-tax planning options against your residency, schedule a free consultation. See our pricing for transparent fixed fees.

This is general information, not tax or legal advice. The details of your situation matter; confirm them with your own advisors.