Using Nevada Trusts to Save State Income Tax
Premier Trust, Inc. recently interviewed Hall of Fame Estate Planning Attorney Steve Oshins, Esq. on saving state income taxes using Nevada trusts. Following are highlights of the interview.
Premier Trust, Inc.: Why is saving state income taxes so important?
Steve Oshins: Saving state income taxes took on an enhanced level of importance when the Tax Cuts and Jobs Act of 2017 limited the state and local tax deduction to $10,000 per year. This essentially makes state income taxes non-deductible, thereby making state income tax planning arguably the most important area of estate planning.
Premier Trust, Inc.: What causes a trust to be subject to a state income tax?
Steve Oshins: This depends on the state. Different states have different rules. The first key is that it must be a non-grantor trust for income tax purposes. Some states tax trusts based on the residency of the settlor (the person who sets up the trust) or testator. Other states tax trusts based on the residency of one or more trustees. Still other states tax trusts based on the place of administration. And other states tax trusts based on the residency of one or more beneficiaries, although we can draft around this. Other states tax trusts based on two or more factors such as residency of a settlor and residency of a trustee.
Premier Trust, Inc.: What are the various trust options that can be used to save state income tax?
Steve Oshins: This can be done using either an incomplete gift non-grantor trust or a completed non-grantor trust.
Premier Trust, Inc.: How does the incomplete gift non-grantor trust work?
Steve Oshins: The incomplete gift trust must be set up in a state that has no fiduciary state income tax and that allows Domestic Asset Protection Trusts. Nevada is one of only a handful of states that meet both of the foregoing requirements. The client generally sets the trust up for the benefit of the client, the client’s spouse, and various family members. Transfers to the trust aren’t completed gifts for gift tax purposes.
Premier Trust, Inc.: How does the completed gift non-grantor trust work?
Steve Oshins: The completed gift non-grantor trust must be set up in a state that has no fiduciary state income tax. Nevada is one of the states that has no state income tax. Transfers to the trust are completed gifts for gift tax purposes. There are three main options. One option is to set the trust up for the client’s descendants. A second option is to set the trust up for the benefit of the client’s spouse and descendants. A third option is to set the trust up for the benefit of the client, the client’s spouse and the client’s descendants. This third option must be set up in a state like Nevada that has no fiduciary state income tax and that allows Domestic Asset Protection Trusts. And the second and third options require an adverse party (another beneficiary) to approve distributions.
Premier Trust, Inc.: What must generally be done to use Nevada law in order to save state income taxes?
Steve Oshins: We generally need a Nevada trustee or a Nevada co-trustee in order to use Nevada law to save state income taxes. Therefore, Premier Trust, Inc. will either be the sole trustee or will be a co-trustee with one or more other co-trustees who don’t reside in states that will cause a state income tax.
Premier Trust, Inc.: Thank you, Steve. Do you have any final comments?
Steve Oshins: I want to thank you for the interview. We at the Law Offices of Oshins & Associates, LLC have been working with Premier Trust, Inc. as our primary choice of Nevada trustee since 2001. We absolutely love the relationship and we always know that we can count on you. We look forward to many more years of working with you.
Steve Oshins, AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018 and 2020. He can be reached at 702-341-6000, ext. 2 or email@example.com. His law firm’s website is www.oshins.com.
Premier Trust, Inc. is a trust administration company chartered in the State of Nevada. We focus exclusively on the administration of trusts and estates in collaboration with a client’s existing legal, accounting, and financial professionals. We do not manage investments or provide legal or accounting services. Our independent model allows us to work with financial professionals, attorneys, CPAs, and their clients across the United States to provide personalized trust administration services.