Tampa Defective Grantor Trust Attorney

In Florida, trusts are not just used to help people bypass probate and transfer their assets to loved ones. Trusts are also a valuable tool for legally reducing your current and future tax obligations. Depending on your financial situation, one option you may wish to consider in this regard is an intentionally defective grantor trust (IDGT).

An IDGT combines many of the benefits of revocable and irrevocable trusts. And despite the name, these “defective” trusts are perfectly legal. They are a more complex form of trust, however, so it is important that you seek out qualified legal advice before creating one. The Tampa defective grantor trust attorney at Knudsen Law can review your current situation and advise you on whether or not an IDGT makes sense for you and your estate planning needs.

What Is an Intentionally Defective Grantor Trust?

In estate planning, you can have both revocable and irrevocable trusts. A revocable living trust is one where the grantor–the person who creates and funds the trust–retains complete control over the trust’s assets during their lifetime. As a result, the IRS generally disregards the trust for tax purposes. In other words, if you fund a revocable trust with your own property, such as your stock portfolio, you still have to pay federal income tax personally on any capital gains. More to the point, while assets in a revocable trust are not subject to Florida probate, they are counted as part of your estate for federal estate tax purposes.

An irrevocable trust, in contrast, means the grantor surrenders control over the trust’s assets to the trustee, who can not be themselves. Irrevocable trusts are generally treated as legally separate entities by the IRS that file and pay their own taxes. This also means that any assets in an irrevocable trust are excluded from the grantor’s estate when determining estate tax liability.

An intentionally defective grantor trust effectively seeks to combine the benefits of both a revocable and irrevocable trust. When properly structured to follow IRS rules, an IDGT is considered a revocable trust for income tax purposes, but an irrevocable trust for estate tax purposes. In simple terms, the grantor is personally responsible for paying the income tax on the trust’s assets while they are still alive. But any property in the IDGT when the grantor dies is not subject to federal estate tax.

Contact the Tampa Defective Grantor Trust Attorneys at Knudsen Law Today

An intentionally defective grantor trust is irrevocable, so once it is created and funded, it is generally very difficult for the grantor to change or modify its terms. You also need to consider all of the potential legal and financial implications, such as whether you will have sufficient funds to pay the ongoing income tax obligations on the IDGT assets. So it is important to sit down with a qualified Tampa defective grantor trusts attorney before taking any action. Contact Knudsen Law today at (727) 398-3600 to schedule a consultation.