ING Trusts in California: How SB 131 and R&TC § 17082 Ended the NING

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

Who this page is for: California residents in any band, from under $15 million single or $30 million married through $100 million and up, who are selling a business, a block of stock or another big asset and have been told a Nevada, Delaware or other out-of-state “ING” trust will keep the gain away from California. An ING was an income tax play, not an estate tax one, so it was pitched at every estate size. Part of our strategies that backfire series.

What is an ING trust?

An ING trust is an irrevocable trust that the grantor funds without making a completed gift (Treas. Reg. § 25.2511-2) and that isn’t a grantor trust under IRC §§ 671 to 679, so it pays its own income tax. When it sits in Nevada it’s called a NING, and in Delaware a DING. California’s statute uses the same two-part definition (R&TC § 17082(d)(1)(A)).

To keep the gift incomplete, the grantor has to keep some power over who gets the property. To keep the trust from being a grantor trust, the grantor can’t have powers that make the grantor its owner for income tax. The answer was a distribution committee.

1. The grantor funds the trust with an out-of-state trustee

   A corporate trustee outside California, usually in Nevada or Delaware, holds the assets. The grantor and family members are discretionary beneficiaries.

2. A committee of family members directs distributions

   The grantor’s own power to send income to himself or herself would make it a grantor trust. Section 677(a) and § 674(a) only apply when the power can be used “without the approval or consent of any adverse party.” An adverse party is someone with a substantial beneficial interest that the power would hurt (IRC § 672(a)). So the committee is made up of other beneficiaries, usually the grantor’s children, whose consent is required.

3. The grantor keeps enough power to leave the gift incomplete

   A gift is incomplete to the extent the donor keeps a power to name new beneficiaries or change their shares (Treas. Reg. § 25.2511-2(c)), and a power the donor shares with someone who has no substantial adverse interest counts as the donor’s own (§ 25.2511-2(e)). In PLR 201310002, discussed below, the grantor had a consent right over committee distributions, a power to make distributions to descendants for health, maintenance, support and education, and a testamentary power to appoint the remainder.

4. The trust sells the asset and pays its own tax

   Federally, a nongrantor trust pays its own tax on the gain. For state tax, the plan was that the trust lived in Nevada or Delaware, not California, so California had no claim.

The pitch

Californians heard a version like this before 2023. You’re about to sell your company stock for a $5 million gain, and California will take 13.3% of it. Before the sale, move the stock into a Nevada trust. Because the gift is incomplete, you use none of your gift exemption and owe no gift tax. Because the trust isn’t a grantor trust, the gain isn’t yours. Because the trustee is in Nevada and you and your family are only discretionary beneficiaries, California can’t tax the trust either. The money stays available to you through the committee. And the assets come back into your estate at death, so your heirs still get a step-up in basis.

Until 2023, that mostly held together for California tax, as long as no California resident counted as a trustee and every California beneficiary’s interest stayed contingent. Then California changed the statute.

What did the IRS say about ING trusts?

The IRS issued private letter rulings approving the structure, including PLR 201310002 (released March 8, 2013), which held a grantor with a family distribution committee wasn’t the owner of the trust under §§ 673, 674, 676 or 677 and hadn’t made a completed gift. Private letter rulings bind only the taxpayer who asked for them.

In PLR 201310002, the trust had a corporate trustee and a distribution committee made up of the grantor and his four sons. Distributions could be made by a majority of the committee with the grantor’s consent, by all the members other than the grantor acting together, or by the grantor alone to his descendants for health, maintenance, support and education. The committee ended at the grantor’s death. The IRS ruled that the grantor wasn’t treated as owner under §§ 673, 674, 676 or 677, and it left the § 675 question open as a fact issue for examination. It ruled the contribution wasn’t a completed gift, that committee distributions weren’t gifts by committee members, and that the trust property would be in the grantor’s estate at death. The letter says it may not be used or cited as precedent (IRC § 6110(k)(3)).

The year before, the IRS showed how a similar trust can go wrong. In CCA 201208026 (released February 24, 2012), donors gave a child, as sole trustee, full discretion to distribute to the family during the donors’ lives, and they kept only testamentary limited powers of appointment over the remainder. Chief Counsel concluded the donors had made completed gifts of the beneficial term interests, because they kept no power over those interests. It added its view that under § 2702 the retained testamentary powers would be valued at zero, so the gift would be the full value of the property. The trust in PLR 201310002, by contrast, gave the grantor lifetime powers over distributions as well as a power at death.

Why did California close the ING trust?

California taxes a trust on its whole income when a trustee or a beneficiary whose interest isn’t contingent lives in California (R&TC § 17742(a)). An ING with a Nevada trustee and purely discretionary beneficiaries could avoid both tests, and gain on stock sold by a nonresident isn’t California-source income unless the stock has a business situs here (R&TC § 17952).

The Court of Appeal has treated a purely discretionary interest as contingent. In Steuer v. Franchise Tax Bd. (2020) 51 Cal.App.5th 417, the Court of Appeal affirmed a ruling that the sole beneficiary of a trust with one California and one Maryland trustee had a contingent interest, because what she would receive depended on the trustees’ discretion. That helped the trust. On the other issue, the trust lost: the court held California taxes the entire amount of a trust’s California-source income, whatever the trustees’ residence.

Accumulating income outside California only defers the tax if the money later goes to a Californian. When income that escaped California tax because a resident beneficiary’s interest was contingent is distributed to that beneficiary, it’s taxable to the beneficiary then (R&TC § 17745(b)). The tax is figured as if the income had been received ratably over the year of distribution and the five years before, or the accumulation period if shorter (§ 17745(d)). So a pre-2023 ING saved California tax only on gains that stayed in the trust or went to people who weren’t California residents when they received them.

Rulings and cases won and lost

• PLR 201310002 (2013), taxpayer win: no grantor trust status under §§ 673, 674, 676 or 677 and no completed gift, for that taxpayer only.
• CCA 201208026 (2012), IRS position: donors who kept only testamentary powers made completed gifts of the term interests.
• Steuer v. Franchise Tax Bd. (2020), split: a purely discretionary beneficiary’s interest is contingent, but California-source income is taxable regardless of where the trustees live.
• New York, 2014, and California, 2023, legislative losses: both states now tax ING income to the grantor.

What did New York do first?

New York reached INGs nine years before California. For tax years beginning on or after January 1, 2014, a New York resident grantor includes an incomplete gift non-grantor trust’s income in New York adjusted gross income, unless the trust was terminated and all its assets distributed before June 1, 2014 (N.Y. Tax Law § 612(b)(41); TSB-M-14(3)I). New York’s definition is the same two-part test California later adopted.

What does R&TC § 17082 do?

For taxable years beginning on or after January 1, 2023, an ING trust’s income is included in the grantor’s gross income to the extent it would be if the whole trust were a grantor trust under R&TC § 17731 (§ 17082(a)). A Form 541 is filed with the box checked to designate the trust as an ING trust, and the grantor reports the income on Form 540 (FTB).

• Who is caught: the “qualified taxpayer” is the grantor of the ING (§ 17082(d)(2)). A nonresident grantor has a California filing requirement if the ING has California-source income (FTB).
• When the trust was formed doesn’t matter. The Franchise Tax Board says § 17082 isn’t retroactive and applies to taxable years beginning on or after January 1, 2023, regardless of when the trust was organized.
• Throwback still applies. Section 17745 continues to apply to distributions from an ING (§ 17082(b)).
• The charitable exception is narrow. Income stays off the grantor’s return only if the fiduciary timely files an original Form 541 electing to be taxed as a resident nongrantor trust, the trust is a nongrantor trust, and 90% or more of its distributable net income goes to 501(c)(3) charities (§ 17082(c)). The election is made each year and is irrevocable once made (FTB). Capital gains usually aren’t part of distributable net income, and the FTB says an electing trust’s capital gains are taxable by California because it has elected resident status.
• Charitable remainder trusts are out. Since January 1, 2026, a trust or portion of a trust that qualifies as a charitable remainder trust under IRC § 664 isn’t an ING (§ 17082(d)(1)(B)), a change made by SB 376 (FTB bill analysis).

Section 17082 changes nothing federally. The trust is still a nongrantor trust for federal income tax, and funding it is still an incomplete gift.

How much California tax does an ING save now?

None. On a hypothetical $5 million stock gain, an ING with a Nevada trustee paid $0 California tax in the year of sale before 2023, and the same trust now produces about $665,000 of California tax on the grantor’s return, the same as selling with no trust (R&TC § 17082; 13.3% top rate, FTB 2025 schedules).

The completed-gift row is what’s left of the idea, and it has costs. The gift uses your lifetime exemption, the trust is built for your family rather than for you, and any later distribution to a California child whose interest was contingent picks up the throwback tax.

What changes in California

• ING income is taxed to the grantor. R&TC § 17082(a), for taxable years beginning on or after January 1, 2023.
• Trust residency. A California trustee or a California beneficiary with a noncontingent interest makes the trust’s income taxable here (R&TC § 17742(a)). With two or more trustees, the income is apportioned by the number of California trustees (§ 17743), and by the number and interests of California beneficiaries (§ 17744).
• California-source income is always taxed. Steuer holds that a trust’s California-source income is taxable regardless of where its trustees live.
• Throwback. Accumulated income that escaped tax because a resident beneficiary’s interest was contingent is taxed when distributed (R&TC § 17745(b)).
• Rates. 12.3% top bracket plus 1% on taxable income over $1 million (FTB; R&TC § 17043), and California taxes capital gains as ordinary income (FTB).
• No reliable creditor protection either. An ING you can benefit from is a trust you created for yourself. Most choose Nevada or Delaware law, but a California court can apply Prob. Code § 15304, which lets your creditors reach what the trustee could pay you. For more on that rule, see our asset protection in California page.

What works and what fails

Who this is for

This page is for Californians with a sale, an IPO or another large gain coming who have heard about Nevada or Delaware trusts, and for families who set up an ING before 2023 and aren’t sure what to do with it now. The broader rules on out-of-state trusts are on our Nevada trusts and California taxes page, and how trust distributions are taxed is on do beneficiaries pay taxes on trust distributions. For the full planning picture, see high-net-worth estate planning in California.

Working with Ridley Law

I work alongside your CPA and, where the matter calls for it, co-counsel. Work at this level is built for each family and quoted in writing before any drafting starts.

The first call is free and runs 30 minutes, by phone or Zoom. Book my 30-minute call or call 805-244-5291.

Frequently asked questions

What is an ING trust?

An incomplete-gift nongrantor trust. Funding it isn’t a completed gift for gift tax, but it’s a separate taxpayer for income tax. NING and DING are the Nevada and Delaware versions.

Do ING trusts still work in California?

Not for California income tax. Since taxable years beginning January 1, 2023, an ING’s income is taxed to the grantor as if it were a grantor trust (R&TC § 17082).

Is § 17082 retroactive?

The Franchise Tax Board says no. It applies to taxable years beginning on or after January 1, 2023, regardless of when the trust was created.

What is the charitable exception to § 17082?

The trust elects each year to be taxed as a California resident nongrantor trust and distributes 90% or more of its distributable net income to 501(c)(3) charities (§ 17082(c)). The FTB says capital gains are still taxable to an electing trust.

Does § 17082 change the federal tax treatment of an ING?

No. It’s a California rule. Federally the trust remains a nongrantor trust and the transfer remains an incomplete gift.

Did other states do the same thing?

New York did in 2014, taxing ING income to New York resident grantors for tax years beginning on or after January 1, 2014 (TSB-M-14(3)I).

What should I do with an ING trust I already have?

Make sure a Form 541 is filed with the ING box checked and that you report the trust’s income on your Form 540 (FTB). Then decide with your CPA whether the trust still serves a purpose, since its California tax advantage is gone.