Using a Nevada Incomplete Grantor Trust as Part of a Business Exit Strategy

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

This article provides an overview of the tax saving benefits pre-sale planning has for business owners in the context of using a Nevada Incomplete Non-Grantor Trust (NING) as part of a business sale. A NING is an irrevocable trust designed to reduce or eliminate potential state income taxes and capital gains taxes upon the sale of a business. Additionally, these trusts offer excellent asset protection for sellers. Generally, NINGs are used by business owners living in high-income-tax states who seek to minimize or eliminate their state income taxes. The NING exists as a form of tax arbitrage to save business owners the cost of state income and federal gift taxes but still permits future asset control by the settlor.

Preliminary planning for the sale of a closely held business

The aim for most entrepreneurs is to develop an exit plan for the sale of their business on their terms. They want to maximize value (or realize their desired value) and close the deal in the most tax-efficient manner1. Achieving these outcomes takes planning and forethought well in advance of the sale. Often, I’ve received calls from business owners who’ve rushed to sell their business, skipped over basic due diligence and, consequently, signed documents that end up costing them hundreds of thousands if not millions of dollars in lost profits.

Ideally, business owners should begin the planning process of selling a closely held business a few years prior to the actual sale to maximize the advantage of the NING. A seller’s preliminary due diligence should include consideration as to whether a NING trust will result in post-sale tax savings.