Demystifying the Use of a Intentionally Defective Grantor Trust
This article discusses the importance of using an “intentionally defective grantor trust” (or “IDGT”) for estate, gift, and income tax purposes. An IDGT involves setting up a trust that accumulates income (while the settlor or the grantor pays the income taxes owed on such income) and yet will not be included in his or her estate for estate tax purposes. An Introduction to the Taxation of Grantor Trusts U.S. federal law imposes a transfer tax upon the privilege of transferring property by gift, bequest, or inheritance. During an individual’s lifetime, his transfer tax takes the form of a gift tax. For gift tax purposes, a gift is defined as the transfer of property for less than adequate and full consideration in money or money’s worth, other than a transfer in…