A South Dakota Incomplete Non-Grantor Trust (SDING) is often used as a strategy to save state and local income taxes. The SDING is a non-grantor trust for income tax purposes (i.e. the trust is responsible for tax liabilities) while also deemed an incomplete gift for transfer tax purposes (i.e. the trust remains in the grantor’s estate).
The SDING can be a particularly powerful strategy when funded with appreciated assets or property that is anticipated to appreciate after transfer. Typical scenarios often used with an SDING include the sale of a closely held business, sale of a family business or the sale of an appreciated concentrated stock position. As mentioned, if properly structured, a grantor can minimize state and local income taxes that otherwise would have been paid by the grantor. However, it generally will not minimize any “source income”.
Typically the trust is established with an institutional trustee such as South Dakota Trust Company LLC. Further, the trust can be established with the grantor, grantor’s spouse, descendants and/or family members as beneficiaries. Typically a distribution committee/appointment committee consists of the grantor and adverse parties (i.e. other trust beneficiaries). In addition, the grantor retains a limited testamentary power of appointment as well as a lifetime power of appointment or distribution power.
The SDING trust established in South Dakota combines South Dakota’s no state income tax with its top tier self-settled statute (i.e. DAPT). In addition, it provides South Dakota’s top rated trust, privacy and tax laws.