Help with incomplete nongrantor (ING) trusts 

Overview

Use this page to find answers to questions about incomplete nongrantor (ING) trust.

  1. Q1: What is an ING Trust?

    A1: The incomplete gift nongrantor (ING) trust is a trust that meets both of the following conditions:

    1. The trust does not qualify as a grantor trust.
    2. The qualified taxpayer’s transfer of assets to the trust is treated as an incomplete gift.

  2. Q2: Who is a qualified taxpayer?

    A2: "Qualified taxpayer" means a grantor of an ING trust.

  3. Q3: Is revenue and taxation code section 17082 retroactive?

    A3: No, It is not retroactive. It applies to taxable years beginning on or after January 1, 2023, regardless of when the trust was organized.

  4. Q4: How do I qualify for the exception to exclude the trust taxable income?

    A4: The income of an ING trust is not included in a qualified taxpayer’s gross income for a taxable year if all of the following apply:

    1. The fiduciary of the ING trust timely files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust.
    2. 90% or more of the distributable net income of the ING trust, is distributed, or treated as being distributed to a charitable organization.

  5. Q5: Is the election a one-time election?

    A5: No. The election is an annual election that is made to exclude the ING trust taxable income for the taxable year if the qualified taxpayer meets all requirements.

  6. Q6: Is the election an irrevocable election?

    A6: Yes, once made on a timely filed original return.

  7. Q7: How do I make the annual election?

    A7: The fiduciary of the ING trust files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust "by checking the box "ING Trust w/ Election" on page 1 of Form 541."

  8. Q8: What is a resident nongrantor trust?

    A8: It is a trust that is not a grantor trust and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary. Electing to be treated as a resident nongrantor trust means you are electing to report the trust income on Form 541.

  9. Q9: What is the 90% test?

    A9: If qualified contributions equal 90% or more of the distributable net income of the ING trust, is distributed or is treated as being distributed.

  10. Q10: What contributions qualify?

    A10: Only contributions made to charitable organizations.

  11. Q11: What is 90% or more… is distributed or treated as being distributed?

    A11: This language refers to the "65-day rule". This section allows a fiduciary to elect to treat distributions made within the first 65 days of the tax year to be treated as if it were made within the prior tax year.

  12. Q12: Does a distribution to a Charitable Remainder Trust (CRT) qualify as a contribution?

    A12: No, a distribution to a CRT does not qualify.

  13. Q13: Are CRT’s impacted by this provision?

    A13: No, CRT’s are governed under IRC section 664.

  14. Q14: If I am a nonresident, does this apply to me?

    A14: Yes, a nonresident grantor of an ING Trust will have a filing requirement if the ING trust has California source income.

  15. Q15: How does the FTB interpret a “resident nongrantor trust”?

    A15: A “resident nongrantor trust" is defined as a trust that is not a grantor trust, and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary. You are electing to be treated as if the entire taxable income of the trust is taxable in California on a residency basis. If the fiduciary or beneficiaries reside outside of California, making the election means you are opting to be taxed as if the fiduciary or all non-contingent beneficiaries reside in California. The entire taxable income of the trust will be taxable by California.

  16. Q16: If the trust makes the election, will the trust have to distribute only 90% of its current annual trust accounting income, or does the election require it to distribute capital gains to a charitable organization as well?

    A16: An electing trust will need to distribute at least 90% of the distributable net income of the ING trust. Distributable net income does not typically include gains or losses from the sale or exchange of capital assets; however, such capital gains would be taxable by California because an electing trust has elected to be treated as a resident nongrantor trust.

Last updated: 09/24/2025