Intentionally Defective Grantor Trusts: Popular Strategy in the Crosshairs
This may seem like an odd time to bring up President Obama’s proposed budget for 2013, released last February, but a recent blog post on Nerd’s Eye View reminded me that there are only a few months to go before a popular trust strategy — the sale of an asset to an intentionally defective grantor trust, or IDGT — may be eliminated.
What has made this technique so appealing to estate-planning attorneys and financial advisers is that the grantor — the person who sets up the trust — pays no income tax on trust earnings. In effect, this is an annual tax-free gift to the trust. At the same time, the assets are removed from the grantor’s estate, thus lowering the value of the estate and saving the heirs estate taxes. And when the grantor sells a low basis asset (such as an interest in a family business) to the grantor trust, there is no income tax event. Read more.EmailSharePrint