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Intentionally Defective Grantor Trust: Income Tax Issues

October 18, 2021

Via: JD Supra

An intentionally defective grantor trust (“IDGT”) can be beneficial for transferring wealth and reducing estate taxes. With a transfer of assets to an IDGT, the settlor effectively removes those assets from the settlor’s estate while retaining the income tax liability for the income generated by those assets. By including certain powers in the trust (known as “grantor powers”) the settlor is treated as the owner of the trust assets for income tax purposes and the trust’s income is taxed to the grantor as if he or she received the trust income directly (IRC Section 671).

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