A trust created in another state to save state income taxes on undistributed earnings is best known as which of the following?

A trust created in another state to save state income taxes on undistributed earnings is best known as which of the following?

• A. DING - Domestic Irrevocable Non-Grantor trust
• B. RLT - Revocable Living Trust
• C. CLT - Charitable Lead Trust
• D. ILIT - Irrevocable Life Insurance Trust

Answer: (A)

Trust taxation and cross-state planning determine how you treat earnings inside a trust. When a trust is irrevocable and non-grantor, it is treated as a separate taxpayer. If it’s created in a state with favorable or no state income tax on trust income, the undistributed earnings can be taxed at those favorable rates rather than at the grantor’s home-state rates. This approach is known as a Domestic Irrevocable Non-Grantor trust, or DING, and it’s a term used to describe this specific setup aimed at reducing state taxes on trust income that isn’t distributed to beneficiaries. The other options aren’t about shifting trust income to a different state for tax savings. A revocable living trust is mainly for probate avoidance and is typically taxed to the grantor since the grantor retains control. A charitable lead trust provides payments to charity and has different tax mechanics. An irrevocable life insurance trust is used to remove life insurance from an estate for estate tax purposes, not to minimize state taxes on undistributed trust earnings.

Trust taxation and cross-state planning determine how you treat earnings inside a trust. When a trust is irrevocable and non-grantor, it is treated as a separate taxpayer. If it’s created in a state with favorable or no state income tax on trust income, the undistributed earnings can be taxed at those favorable rates rather than at the grantor’s home-state rates. This approach is known as a Domestic Irrevocable Non-Grantor trust, or DING, and it’s a term used to describe this specific setup aimed at reducing state taxes on trust income that isn’t distributed to beneficiaries.

The other options aren’t about shifting trust income to a different state for tax savings. A revocable living trust is mainly for probate avoidance and is typically taxed to the grantor since the grantor retains control. A charitable lead trust provides payments to charity and has different tax mechanics. An irrevocable life insurance trust is used to remove life insurance from an estate for estate tax purposes, not to minimize state taxes on undistributed trust earnings.