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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