Imagine you are in a casino and are about to play roulette. You can choose to put all your chips on a single number. If you win, you will win big and if you lose, you lose everything.
Another option is to spread your chips onto several spots, giving you a higher chance of winning something but at the same time ensuring you cannot win as big as you could have if you had put all your chips on one spot.
Which option are you more likely to choose? If you pick the second option, you are choosing to diversify your risk.
Vanguard Group Founder, John C. Bogle, may he rest in peace, famously said, “[d]iversification is not only the first important thing investors should think about, but the second and the third, and probably the fourth and fifth, too.”
There is no such thing as a risk-free investment. There are, however, many ways to lower your risk: getting smart about investing is one way; avoiding strategies and schemes that are really gambling is another.
A NING Trust is a type of trust that residents of states with high-income tax rates can use to reduce their state income taxes. “NING” stands for “Nevada Incomplete Non-Grantor Trust.” Their use has become more popular in the past few years as a result of the Tax Cuts and Jobs Act of 2017, which led to the restriction of many of the deductibles on state income taxes.
Unlike grantor trusts, which are taxed to the grantor, a non-grantor trust is considered a “separate taxpayer.” This means that it has the ability to reside in a different state, such as Nevada, with no existing state income tax. The NING is an exceptional tool that can be used to avoid state income taxes and protect assets. By eliminating state income taxes, the net rate of return on investment is increased.
For instance, in the case of California, which imposes a maximum 13.3% income tax, the elimination of the state tax may mean huge savings and a corresponding increase in the net return on investment. It may also mean extraordinary savings upon the disposition of highly appreciated securities and other intangible investments.
And Nevada isn’t the only option. This powerful tax planning tool has been approved in several private letter rulings by the IRS, and Wyoming and Delaware have also followed suit with their own WING and DING Trusts respectively. To learn more, read Eliminate Your State Income Taxes with Non-Grantor Trusts by Neil Schoenblum.
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