Learn how to effectively plan with intentionally defective grantor trusts and know the tax issues related to them.
Many high-net-worth individuals have exhausted their lifetime exclusion from gift and estate taxation. So, gifting additional funds to a trust or to loved ones will then generate gift tax. Likewise, when appreciating assets are left in one's estate after exhausting the federal estate tax exclusion, assets in excess of that exemption amount will generate estate tax in accordance with the full fair market value of all of a person's assets as of that person's date of death. This course will introduce the Intentionally Defective Grantor Trust (IDGT) as a tool to help high-net-worth individuals transfer appreciating assets out of their names to leverage their estate and gift tax exemptions. The material will also explain the sale to the defective grantor trust as a method to achieve estate and gift tax savings. This information is critical for attorneys, accountants, and estate planners to assist their clients with maximizing tax savings using the sale to the intentionally defective grantor trust as a tool to leverage the estate and gift tax exemption.
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Agenda
Intentionally Defective Grantor Trust Definition
- Trust Requirements
- Grantor Trust Brief Discussion
- What Is Defective About the Intentionally Defective Grantor Trust (IDGT)?
- IDGT (Pronunciation - Idgit, Like Widget, or I Dig It)
Who and Why Would One Use an IDGT?
- High-Net-Worth Individuals Who Have Exhausted or Nearly Exhausted Their (Now $12.06 Million) Estate Gift Tax Exemption
- High-Net-Worth Individuals Who Want to Conserve Their Remaining Exemption
Case Study: Sale of LLC Units to an IDGT Mechanics
- Grantor Establishes an Irrevocable Grantor Type Trust
- Grantor Gifts 10% of the Value of LLC Units to the Trust
- Grantor Executes Instrument of Sale to the Trust
- The Trust Executes a Promissory Note at AFR Rate Back to the Grantor
- LLC Units Must Be Appraised
- Promissory Note Payments Must Be Tracked Preferably With an Excel Spreadsheet
- Income Tax - Grantor Is Paying Income Tax on Any Distributions From the LLC Units
- Income Tax - Grantor Is Not Paying Income Tax on the Interest Paid by IDGT to Grantor
- Income Tax - No Capital Gain on Sale From Grantor to Grantor Trust
Reporting and Consequences of the Transaction
- Recommended Filing of Gift Tax Return to Report the Sale Transaction
- Attach to Return - Trust, Instrument of Sale, Appraisal Report
- Income Taxable to Grantor Removes Additional Funds From Grantor's Estate Without Being Charged as a Taxable Gift
- 10% Gift to Trust Is a Taxable Cash Gift but Can Be the Fund From Which Loan Payments May Be Made
- The Appraised Value of the LLC Units Is Excluded From the Calculation of the Grantor's Exemption From Gift and Estate Tax; Likewise All Appreciation Is Excluded
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OnDemand Course
This course was last revised on March 31, 2022.
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- NY CLE 1.0 including Areas of Professional Practice 1
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- VT CLE 1.0
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Faculty
Charles Bryan Baron, Esq.
McLaughlin & Stern, LLP
- Partner, McLaughlin & Stern LLP, New York, NY
- Trusts, estates, and taxation practice
- Named expert in the law of New York Private Trusts, 2004
- Author of “Self Dealing Trustees and the Exoneration Clause: Can Trustees Ever Profit from Transactions with Trust Property,” 72 St. John’s Law Review 43 (1998) and “The International Legal Status of Jerusalem,” 8 Touro International Law Review 1 (1998)
- Translator-interpreter at the John Demjanjuk war crimes trial in Israel, 1987
- Member of the New York Bar, United States District Court for the Southern District of New York, United States District Court for the Eastern District of New York, United States Tax Court, and the United States Supreme Court
- B.A. degree in international relations, magna cum laude, University of Pennsylvania; LL.B. degree, Bar Ilan University Faculty of Law; LL.M. degree, summa cum laude, Touro University Law Center
- Can be contacted at [email protected]
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