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Intentionally Defective Grantor Trusts

Estate Planning Lawyer for Nashville Area Residents

In age in which the concept of perfection is held in high regard, you may be wondering why anyone would create something called and “intentionally” defective grantor trust. The truth is, the term “intentionally” is something of a misnomer is this particular case. While a trust may be “defective” for some purposes – such as for qualifying for certain provisions of the Internal Revenue Code – it may be perfectly effective for other purposes – like the rules pertaining to estate taxation. The concept is confusing, but talking to an experienced Nashville estate planning attorney can help clear up any misconceptions concerning the reasons why an intentionally defective grantor trust (IDGT) might be the best option in certain situations. If you have questions about this type of trust, or about another type of trust, wills, or other estate planning options, at the Randy Ratliff Law Offices, PLLC, we will be glad to talk to you.

Trusts can be categorized in several different ways – testamentary or living, revocable or irrevocable, and, yes, even effective or intentionally defective. The first categorization, testamentary or living, has to do with whether the trust goes into effect while the trustor (the person setting up the trust) is still living or whether it takes effect after he or she has passed away. A living trust, as the name suggests, becomes effective while the grantor is still alive. A living trust may also be referred to as an inter vivos trust. By contrast, a testamentary trust is usually contained within the trustor’s will and does not go into effect until he or she has died. By their nature, an intentionally defective grantor trust is a living trust.

IDGT – A Possible Option to Discuss With Your Estate Planning Attorney

Trusts can also be classified as either revocable or irrevocable. Simply put, a revocable trust can be revoked – that is, terminated or modified – by the trustor if he or she so chooses. This allows the trustor to make a change in the future, which can be an attractive option for some. By contrast, an irrevocable trust cannot be changed in the future, at least in most situations. Thus, a person entering into an irrevocable trust, including an intentionally defective grantor trust (which is considered an irrevocable trust) should thoroughly understand both the risks and benefits of such a legal vehicle.

IDGTs are, by design, set up in a way that allows the grantor to make a gift of cash or other assets, placing such into the trust to be held for the benefit of one or more beneficiaries. However, the trust is intended to fail certain tests established under federal tax law, but still be approved by the Internal Revenue Service in other ways. The net result is that the person setting up the trust continues to pay income taxes because it does not comply with some of the requirements of the Internal Revenue Service, yet the trust is written in such a way as to minimize the net effects of other taxes, such as estate taxation.

Consult a Nashville Attorney About an IDGT or Other Trust

An intentionally defective grantor trust can work for those in certain situations, but there may be other options that are a better fit. It is important to discuss all of your estate planning needs with an experienced estate planning lawyer before deciding the best option for your particular circumstances. Attorney Randy Ratliff at the Law Offices of Randy Ratliff, P.C., regularly advices those in Davidson and Williamson Counties concerning not only IDGTs and other trusts, but also wills, powers of attorney, healthcare proxies, and business succession planning. If you live in or near Nashville, Franklin, Cool Springs, Brentwood, Antioch, Madison, Hermitage, Goodlettsville, or Joelton, call us at 615-656-8282 or contact us online, and we will be glad to schedule an appointment for you to come in and discuss your concerns. We also handle elder law matters and family law cases, including divorce and cases involving child custody or child support.