Intentionally Defective Grantor Trusts

If you have assets you anticipate will increase in value, you can “freeze” the value of those assets for estate tax purposes with an Intentionally Defective Grantor Trust, an “IDGT”.  Most wonder why they would want an “intentionally defective” anything, but it references the fact your estate attorney will purposefully insert language making the transfer of assets to the trust an incomplete gift for income tax purposes but a complete gift for estate tax purposes.  Therefore, immediately following the transfer to the IDGT, the IRS considers the trust’s assets to be owned by your heirs for estate tax purposes but still considered owned by you for income tax purposes. These differing classifications can be very beneficial for those with estate tax concerns, rather than a need for a step-up in basis at death. 

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What is a Trust? The Basics of Forming a Maryland Trust

It’s common to hear attorneys and others refer to trusts, but you may not know exactly what they are or why they are needed.  A trust is similar to an entity, such as a corporation or an LLC, in that a trust has a separate identity from either the person that formed it or the people it is intended to benefit.  The trust may own property in its own name and may even have a separate tax ID for its dealings with the IRS.

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