A “WING” is a Wyoming domiciled, incomplete gift, non-grantor trust. These trusts are used to isolate income tax liabilities away from the grantor of the trust, but not to exclude the WING’s assets from the grantor’s estate and concomitant excise tax at death.
The non-grantor portion requires the avoidance of the grantor trust provisions of the Internal Revenue Code (“IRC”), those being Subpart E, IRC §§671-679. A WING is typically established by a grantor who has exhausted his or her unified transfer tax credit and needs to fund the WING with an “incomplete gift” so as to avoid the imposition of gift taxes. Subtitle B, IRC §§2001-2801.
The purpose of a WING is state income tax reduction, i.e., to move income from a high-income tax state, e.g., California and New York to a no tax state, e.g., Wyoming. The grantor typically establishes these trusts after exhausting his or her unified transfer tax credit.
To accomplish the desired results, the transaction must be carefully structured to meet all the following requirements:
The WING’s trustee must be given the power to make discretionary distributions to you of trust income without making the WING a grantor trust since IRC §671 will then include all trust income on your Form 1040. In this respect the “spousal attribution rules” apply and you cannot give your spouse powers which if you held the power, would cause grantor trust status.
The IRS has continued to rule that a WING may qualify as a non-grantor trust if the trust is structured as follows with respect to distributions:
Three alternative methods are required for distribution directions:
A significant feature of these rulings is that you may be a beneficiary if distributions are solely within the control of a distribution committee, all of whom have adverse financial interests, as defined in IRC §672(c) and you do not vote on distributions to yourself, other than as provided below; thus, all members of the committee must be beneficiaries and the committee must be a shrinking committee that can never be allowed to decline below two members, not including yourself. If it does, only one member would remain and there would be no substantial adverse party interest. (PLR 200247013 (Aug. 14, 2002); PLR 200612002 (Mar. 24, 2006); PLR 200502014 (Jan. 14, 2005); PLR 200148028 (Nov. 30, 2001).
No member on the distribution committee may be a fiduciary.
PLRs 201410001-201410010 (released March 7, 2014) approved guardians acting on behalf of minors on the distribution committee.
You must retain enough control over the WING’s assets to avoid making a completed gift and the imposition of a gift tax, all without creating a grantor trust. This may be accomplished by:
The testamentary special power of appointment makes the gift to your WING an incomplete gift and the consent requirements avoid grantor trust status.
In California Franchise Tax Board Technical Advice Memorandum 2006-0002 (2/17/06), the California Franchise Tax Board stated that if a non-California trustee could make distributions in the trustee’s discretion to a California beneficiary without subjecting the undistributed income to California tax. There are exceptions:
Your WING must provide that each beneficiary’s interest is subject to the sole and absolute discretion of the trustee and, therefore, is a contingent interest in the trust. There are no income accumulation provisions in your WING.
Your WING is a Wyoming, non-grantor trust, with a Wyoming domiciled trustee and there are no non-contingent beneficiaries. This avoids the first and third designations, above. You will, however, have to pay income tax on income generated in your state.
Your WING has been established to accomplish an incomplete gift to a non-grantor trust with contingent beneficiaries to eliminate state income tax.