Why Create An Intentionally Defective Grantor Trust
An intentionally defective grantor trust is a powerful tool for reducing your family’s taxable estate and taking advantage of gifting exclusions. As with any trust, it is important that it be structured, funded and tended properly to avoid unnecessary taxation, IRS scrutiny or probate disputes.
The estate planning lawyers of Cushing & Dolan, P.C., provide sure handling of these sophisticated instruments. We regularly advise family-owned businesses and high net worth clients with multimillion-dollar estates in the Boston area, and surrounding counties of Massachusetts and New Hampshire. Arrange a consultation today.
How an IDGT Can Be Used in Tax And Estate Planning
The intentionally defective grantor trust (IDGT), also known as an irrevocable gifting trust, is a versatile solution for many scenarios. It could reduce the taxable estate of a family business, for instance, by transferring the non-voting LLC shares into a trust to take advantage of the discounted valuation. Or it might be used to exclude a vacation home, which is not eligible for the homestead exemption, from the taxable estate.
We understand the estate tax and gift tax implications of trusts and transactions. The intentionally defective grantor trust provides the best of both worlds for tax purposes. While you are living, the assets are taxed at the individual level rather than the trust level. Upon death, the assets pass directly to heirs outside of your estate, avoiding probate and the estate tax hit.
The IDGT is an irrevocable trust. As the grantor, you cannot be the trustee or the beneficiary. Your spouse or children can be beneficiaries, or your grandchildren if established as a generation skipping trust. If your children will inherit the family business or other IDGT assets, our attorneys can incorporate the Crummey trust provisions to preserve the gift tax exclusions.