An IDGT, or intentionally defective grantor trust, is a useful tool for people in South Carolina who are beginning their estate planning. Like other kinds of trusts, an IDGT can help with the transfer of accumulated wealth while minimizing the tax impact of moving the assets.
What to know about IDGTs
IDGTs are structured in a way to reduce estate taxes, generation-skipping taxes, and income taxes for assets placed in them. They are called “intentionally defective” because the grantor pays income taxes on the assets when normally trusts have their own tax filings. An IDGT is ideal for those who have accumulated a significant amount of assets and would like to pass them down to younger heirs while they are still alive rather than when they pass away. This structure is valuable because it permits significant tax savings.
Under an IDGT, the grantor takes on paying income tax for the assets, but the gift tax, estate tax, and generation-skipping tax can be reduced or eliminated. The system is a good fit for assets that are expected to grow and appreciate in value, but the grantor does not expect to need access to them for the rest of their life. They can lock the assets away in the IDGT and use that as a vehicle to transfer wealth to children and grandchildren.
IDGTs can be built in many different ways, and the grantor has total control over the distributions, who has access to it, and when they get that access. An IDGT is a flexible and powerful way to reduce taxes while giving the grantor control over the passage of wealth through the family.