Monday, August 11, 2014
Corporate tax inversion is the tax strategy whereby large multinational corporations shift assets or company headquarters to other countries in order to profit from a lower corporate income tax rate. While some politicians and Americans believe tax inversion strategies are unpatriotic, others retort that corporations are following the law and capitalizing on the rules of the game they are given.
If you are one of the individuals who lean on the side of wanting to take advantage of all legally available options to reduce taxes and feel left out, your wait is over. A strategy called the “personal tax inversion” can be used to avoid potentially hundreds of thousands of dollars in state income taxes. The personal tax inversion strategy is somewhat new, and can help you pay less state income tax. However, it is not right for every situation.
With personal tax inversion, there is a way to shift assets to a state without any income tax. You are able to accomplish this by shifting assets to a trust located in a different state within the United States.
By using a non-grantor trust, you can place assets into a trust and you are no longer considered the “owner” for tax purposes. Thus, the trust itself, rather than you, is responsible for paying income tax. If the trust is administered in a tax-free state, the trust pays no tax. However, there is a caveat. If you transfer assets outside of your control, you may pay gift taxes. To remedy this situation, you may structure an Incomplete Non-Grantor Trust (NING) in a state such as Nevada, Delaware, or Alaska. The NING is a perfect solution because it gives up the perfect amount of control.
See Robert Pagliarini, Avoid State Income Tax With A Personal Tax Inversion, Forbes, July 31, 2014.