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Home >> Using the Intentionally Defective Trust: 3 Facts You Should Know

Using the Intentionally Defective Trust: 3 Facts You Should Know

February 27, 2013 by Robert Kulas. Leave a Comment

Fact 1: Defective doesn’t mean Ineffective

Despite the name, an intentionally defective grantor trust can be a very useful estate planning tool. The intentionally defective trust, often abbreviated as IDGT, will not be able to help you reduce your income tax liability, but it will allow you to shelter some of your assets for estate tax purposes. This is why the trust is known as defective, because it doesn’t completely separate you—the grantor—from the property and thus does not provide for income tax protections.

Fact 2: You can reduce the size of your estate.

When you create an intentionally defective trust you transfer some of your property to the trust to own. Because the trustee is irrevocable that property will no longer be included when it comes time to value the size of your estate. This means that upon your death the trust beneficiaries can receive the property without it being subject to estate taxes.

Fact 3: The Grantor is the Owner of Trust Property for Income Taxes

When you create an intentionally defective grantor trust you still have to pay income taxes on the trust property. Any income, deductions, credits, and any other taxable interest that applies to the trust property is something you will have to report to the IRS as if you were the owner and not the trust.

On the other hand, the value of the property transferred to the trust is effectively frozen regardless if it later appreciates. The details of how this works can be a little complicated, so you’ll have to speak to your lawyer about the fine points.

Filed Under: Estate Planning, Trust Administration Tagged With: Estate Planning, trusts

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Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family.

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"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
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Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
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I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

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I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
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We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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