Help with incomplete nongrantor (ING) trusts 

A1: The incomplete gift nongrantor (ING) trust is a trust that meets both of the following conditions:

1. The trust does not qualify as a grantor trust.
2. The qualified taxpayer’s transfer of assets to the trust is treated as an incomplete gift.

A2: "Qualified taxpayer" means a grantor of an ING trust.

A3: No, It is not retroactive. It applies to taxable years beginning on or after January 1, 2023, regardless of when the trust was organized.

A4: The income of an ING trust is not included in a qualified taxpayer’s gross income for a taxable year if all of the following apply:

1. The fiduciary of the ING trust timely files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust.
2. 90% or more of the distributable net income of the ING trust, is distributed, or treated as being distributed to a charitable organization.

A5: No. The election is an annual election that is made to exclude the ING trust taxable income for the taxable year if the qualified taxpayer meets all requirements.

A6: Yes, once made on a timely filed original return.

A7: The fiduciary of the ING trust files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust "by checking the box "ING Trust w/ Election" on page 1 of Form 541."

A8: It is a trust that is not a grantor trust and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary. Electing to be treated as a resident nongrantor trust means you are electing to report the trust income on Form 541.

A9: If qualified contributions equal 90% or more of the distributable net income of the ING trust, is distributed or is treated as being distributed.

A10: Only contributions made to charitable organizations.

A11: This language refers to the "65-day rule". This section allows a fiduciary to elect to treat distributions made within the first 65 days of the tax year to be treated as if it were made within the prior tax year.

A12: No, a distribution to a CRT does not qualify.

A13: No, CRT’s are governed under IRC section 664.

A14: Yes, a nonresident grantor of an ING Trust will have a filing requirement if the ING trust has California source income.

A15: A “resident nongrantor trust" is defined as a trust that is not a grantor trust, and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary. You are electing to be treated as if the entire taxable income of the trust is taxable in California on a residency basis. If the fiduciary or beneficiaries reside outside of California, making the election means you are opting to be taxed as if the fiduciary or all non-contingent beneficiaries reside in California. The entire taxable income of the trust will be taxable by California.

A16: An electing trust will need to distribute at least 90% of the distributable net income of the ING trust. Distributable net income does not typically include gains or losses from the sale or exchange of capital assets; however, such capital gains would be taxable by California because an electing trust has elected to be treated as a resident nongrantor trust.