[{"@context":"https:\/\/schema.org\/","@type":"BlogPosting","@id":"https:\/\/www.amorusolaw.com\/blog\/how-does-an-intentionally-defective-grantor-trust-work-new-york-ny-white-plains-ny\/#BlogPosting","mainEntityOfPage":"https:\/\/www.amorusolaw.com\/blog\/how-does-an-intentionally-defective-grantor-trust-work-new-york-ny-white-plains-ny\/","headline":"How Does an Intentionally Defective Grantor Trust Work?","name":"How Does an Intentionally Defective Grantor Trust Work?","description":"\u201cThis type of trust can be established to benefit your spouse, children, grandchildren and other descendants. However, it may be more appropriate in some situations than others. Getting to know the details of what an IDGT is and how it works can help you decide if it makes sense for you.\u201d Using trusts as part […]","datePublished":"2020-07-08","dateModified":"2024-04-02","author":{"@type":"Person","@id":"https:\/\/www.amorusolaw.com\/blog\/author\/amorusolaw\/#Person","name":"Amoruso & Amoruso LLP","url":"https:\/\/www.amorusolaw.com\/blog\/author\/amorusolaw\/","identifier":5,"image":{"@type":"ImageObject","@id":"https:\/\/secure.gravatar.com\/avatar\/12de032c04195e9c39a06a6d6eea182f7b4fa655c20e245f8094a244b5cdd0cb?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/12de032c04195e9c39a06a6d6eea182f7b4fa655c20e245f8094a244b5cdd0cb?s=96&d=mm&r=g","height":96,"width":96}},"publisher":{"@type":"Organization","name":"Amoruso & Amoruso LLP","logo":{"@type":"ImageObject","@id":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/07\/amoruso-logo.svg","url":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/07\/amoruso-logo.svg","width":0,"height":0}},"image":{"@type":"ImageObject","@id":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/04\/6a01901dd0a082970b0263ec26279a.jpg","url":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/04\/6a01901dd0a082970b0263ec26279a.jpg","height":600,"width":395},"url":"https:\/\/www.amorusolaw.com\/blog\/how-does-an-intentionally-defective-grantor-trust-work-new-york-ny-white-plains-ny\/","about":["Estate Planning","Generation Skipping Tax","Gift Tax","Intentionally Defective Grantor Trust \/ IDGT","Irrevocable Trust","Revocable Living Trust"],"wordCount":559,"keywords":["Estate Planning","Generation Skipping Tax","Gift Tax","IDGT","Intentionally Defective Grantor Trust","Irrevocable Trust","Revocable Living Trust"],"articleBody":"\u201cThis type of trust can be established to benefit your spouse, children, grandchildren and other descendants. However, it may be more appropriate in some situations than others. Getting to know the details of what an IDGT is and how it works can help you decide if it makes sense for you.\u201dUsing trusts as part of an estate plan creates many benefits, including minimizing estate taxes. One type of trust is known as an \u201cintentionally defective grantor trust,\u201d or IDGT. It\u2019s a type of irrevocable trust used to limit tax liability when transferring wealth to heirs, as reported in the recent article “Intentionally Defective Grantor Trust (IDGT)” from Yahoo! Finance. It is good to understand the details so you can decide if an IDGT will help your family.An irrevocable trust is one that cannot be changed once it is created. Once assets are transferred into the trust, they cannot be transferred back out again, and the terms of the trust cannot be changed.\u00a0You will want to talk with your estate planning attorney in detail about the use of an IDGT before it is created.An IDGT allows you to permanently remove assets from your estate. The assets are then managed by a trustee, who is a fiduciary and is responsible for managing the trust for the beneficiaries. All of this is written down in the trust documents.However, what makes an IDGT trust different, is how assets are treated for tax purposes. The IDGT lets you transfer assets outside of your estate which lets you avoid paying estate and gift taxes on the assets.The IDGT gets its \u201cdefective\u201d name from its structure, which is an intentional flaw designed to provide tax benefits for the trust grantor\u2014the person who creates the trust\u2014and their beneficiaries. The trust is defective because the grantor still pays income taxes on the income generated by the trust, even though the assets are no longer part of the estate. It seems like that would be a mistake, hence the term \u201cdefective.\u201dHowever, there is a reason for that. The creation of an IDGT trust freezes the assets in the trust. Since it is irrevocable, the assets stay in the trust until the owner dies. During the owner\u2019s lifetime, the assets can continue to appreciate in value and are free from any transfer taxes. The owner pays taxes on the assets while they are living, and children or grandchildren do not get stuck with paying the taxes after the owner dies. Typically, no estate tax applies on death with an IDGT.Whether there is a gift tax upon the owner\u2019s death will depend upon the value of the assets in the trust and whether the owner has used up his or her lifetime generation-skipping tax exemption limit.Your estate planning attorney can help establish an IDGT, which should be created to work with the rest of your estate plan. Be aware of any exceptions that might alter the trust\u2019s status or result in assets being lumped in with your estate. Funding the IDGT also takes careful planning. The trust may be funded with an irrevocable gift of assets, or assets can be sold to the trust. Your attorney will be able to make recommendations, based on your specific situation.Reference: Yahoo! Finance (June 3, 2020) “Intentionally Defective Grantor Trust (IDGT)“"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Blog","item":"https:\/\/www.amorusolaw.com\/blog\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"How Does an Intentionally Defective Grantor Trust Work?","item":"https:\/\/www.amorusolaw.com\/blog\/how-does-an-intentionally-defective-grantor-trust-work-new-york-ny-white-plains-ny\/#breadcrumbitem"}]}]