An intentionally defective grantor trust (IDGT) is a type of trust that is designed to avoid certain tax liabilities while still allowing the grantor to retain certain benefits or control over the trust’s assets. Despite its name, an IDGT is not actually defective in the same way as a defective grantor trust, as it is specifically designed to meet the requirements set forth by the Internal Revenue Service (IRS) to qualify as a non-taxable entity.

Taxes

However, an IDGT is taxed differently than a typical trust. Because the grantor of the trust is still considered the owner of the trust’s assets for tax purposes, the grantor is responsible for paying taxes on the trust’s income as if it were their own. This means that the trust itself is not subject to taxes on its income, but the grantor is still required to pay taxes on that income.

Advantages

There are several advantages to using an IDGT, including the ability to transfer assets to the trust without incurring gift taxes, and the ability to retain certain benefits or control over the trust’s assets. However, it is important to carefully plan and structure the trust in accordance with the IRS’s requirements in order to ensure that it qualifies as an IDGT and avoid any potential tax liabilities.

Let Us Help!

One way to avoid the problems associated with an intentionally defective grantor trust is to carefully plan and structure the trust in accordance with the IRS’s requirements. This may include hiring a qualified attorney or tax professional to assist with the creation of the trust and ensuring that all necessary steps are taken to properly transfer ownership of the assets to the trust. Give us a call to schedule an appointment with one of our expert attorneys who can help you navigate the ins-and-outs of this type of planning tool. Call our office at 601.925.9797 or click here to schedule a call!