If you like this video, go ahead and give us a thumbs up and subscribe to our channel. We come out with new content all the time. A lot of people know that as estate planning attorneys, we focus on estate tax planning, but one of the biggest overlooked areas of what we do is income tax planning.
Today, I’m going to talk about how to use a trust to avoid or minimize income tax. In particular, I’m going to focus on reducing your state income tax liability. Of course, this will only work for clients in jurisdictions that have a state income tax. If you’re in Texas or Florida, this might not be as big of a deal to you, although it could still be of interest depending on where the beneficiaries of your trust planning might reside.
Long story short, if you set up a trust in a jurisdiction that doesn’t have a state income tax, such as South Dakota—because it is the premier jurisdiction in the country and doesn’t have a state income tax—you have the ability to move assets into that trust. Whether it’s a closely held business interest that you’re about to sell or plan to sell in a few years down the road, and you’re looking at significant capital gains, or maybe it’s a complete liquidation of your business interest or a partial liquidation, you can move that into a South Dakota incomplete non-grantor trust.
If you have a large investment account with a lot of capital gains and you’re paying a lot in state and local income tax, you can move that investment account over to a South Dakota trust. There are a few different ways to set that up, and I won’t go into the details today, but that is how you avoid paying state income tax.