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The IDGT will be treated differently for legal and estate tax purposes versus the treatment for income tax purposes.
While the authors of this article suggested in a previous article that a client might want to combine a PFLP with an IDGT to hold the common interests, they never considered combining a PFLP with a GRAT.
After seeding the IDGT, the client then sells assets to the irrevocable trust in exchange for the promissory note.
As with a GRAT or IDGT, it is hoped that the CLT assets will appreciate beyond the IRS's 7520 rate, allowing the excess to pass to the beneficiary tax-free.
If structured properly, the IDGT will receive the gross income generated from the trust's income-producing assets, which will accrue to the benefit of the trust's beneficiaries.
Question--What are the implications if an IDGT requires the trust to pay back the grantor for any income tax liability generated by the trust?
Let's say for example you transfer a building worth $5 million, having a cash flow and income of $400,000 per year, to a partnership and gift a 60% interest in the partnership to an IDGT for the benefit of your children.
Finally, an Intentionally Defective Grantor Trust ("IDGT") exploits the differences in estate and income tax through a grantor's sale of property to the trust in exchange for payments on a note.
(30) An intentionally defective grantor trust (IDGT) invested in 60% stocks and 40%) bonds
An installment sale to an intentionally defective grantor trust (IDGT) is an alternative estate-freezing strategy that is often compared to a GRA T.
A sale to an IDGT combines the interest rate benefits of intra-family loans with the discounting benefits of inter vivos gifts.
Once Harry is satisfied he has met his support needs, a good strategy for shifting large amounts of appreciation from Harry and Happy to their kids with minimal or no gift tax is through the establishment of either a grantor retained annuity trust (GRAT) or an intentionally defective grantor trust (IDGT).
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