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Home » Guardianship » IDGT: When Defective Becomes Effective

IDGT: When Defective Becomes Effective

November 8, 2013 by Larry Parman, Attorney at Law

There are many different acronyms that are used to describe estate planning devices, and some of the terms that they represent are a bit confusing. One that may fit this description is the intentionally defective grantor trust.

This type of trust may be a viable option if you are seeking to reduce the taxable value of your estate for eventual distribution to your heirs.

Because these trusts are irrevocable, any assets you convey into the trust are no longer included in your estate for estate tax purposes.

What makes the trust “defective?”

Most irrevocable trusts shift the tax burden from the grantor to the trust. However, an intentionally defective grantor trust allows the grantor to retain responsibility for the payment of income taxes on income generated by the trust.

Because the grantor is paying the taxes from the grantor’s individual assets, the value of the trust can continue to grow without being continually sapped by income taxes.  This results in a greater distribution to the beneficiaries of the trust.

Paying the income taxes also benefits the grantor because the tax payments reduce the taxable value of the grantor’s estate.

To learn more about intentionally defective grantor trusts and other advanced tax efficiency devices simply contact our firm to request a free wealth preservation consultation.

Blaine Peterson
Author, Attorney
Parman & Easterday

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Larry Parman, Attorney at Law
Larry Parman, Attorney at Law
Founder and Owner at Parman & Easterday
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.
Larry Parman, Attorney at Law
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Filed Under: Guardianship Tagged With: avoiding guardianship, Charitable Remainder Unitrust, Financial Planning, Social Security, tax planning

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