Intentionally Defective Grantor Trusts:  Estate Planning with Schrödinger’s Cat

Intentionally Defective Grantor Trusts: Estate Planning with Schrödinger’s Cat

tax planning
by James Huang A popular estate planning vehicle for transferring wealth to descendants during one's lifetime is the "intentionally defective grantor trust" (IDGT), also referred to as an “intentionally defective irrevocable trust” (IDIT). Through this type of irrevocable trust, transferors can significantly increase the amount they shield from estate tax upon their deaths. This increase is achieved by virtue of how a trust can simultaneously exist, or not exist, depending on which tax perspective one takes in viewing it. In the case of IDGTs, transfers between the trust and the person (or grantor) who creates it are respected for gift and estate tax purposes, but disregarded for income tax purposes. Income Tax Payments When a grantor transfers property to an IDGT, the grantor "freezes" that property’s transfer date value for…
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Tax Planning for Foreign Individuals That Own U.S. Real Property

Tax Planning for Foreign Individuals That Own U.S. Real Property

tax planning
By Anthony Diosdi As I have discussed in previous articles, nonresident alien domiciliaries are generally subject to U.S. estate tax on his or her U.S. situs assets. The most common example of a U.S. situs asset is U.S. real estate. In this context, it is important to remember that a nonresident alien domiciliary does not benefit from the same “Unified Credit” as a U.S. citizen or resident alien domiciliary. Instead, a nonresident alien domiciliary is only entitled to a $60,000 deduction (equivalent to a $13,000 credit). Because the value of U.S. real estate owned by a nonresident alien domiciliary almost always exceeds this $60,000 “threshold,” the estate of a nonresident alien domiciliary can be subject to a U.S. estate tax on such real estate.In this context, many nonresident alien domiciliary’s…
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