Brown & Streza Blog
Feb 27

Written by: David Keligian
2/27/2012 5:24 PM  RssIcon

One of the most powerful techniques for the transfer of wealth to children and grandchildren is the intentionally defective grantor trust, or “IDIT”. The IDIT offers the following benefits:

• An opportunity to transfer significant wealth by getting assets out of your estate at the cost of little or no gift tax.

• Asset protection for the IDIT beneficiaries.

• Exemption from the generation skipping transfer tax for the IDIT, meaning the transferred wealth can be passed down to grandchildren and great-grandchildren without exposure to additional estate or gift taxes.

• The ability for the grantor to pay all income taxes on the IDITs taxable income. This amounts to an additional wealth transfer to the IDIT beneficiaries each and every year, without any gift taxes.

Unfortunately, President Obama’s fiscal year 2013 revenue proposals (read: “big tax increases”) propose doing away with the IDIT. In the proposal’s words: “The lack of coordination between the income and transfer tax rules applicable to a grantor trust creates opportunities to structure transactions between the deemed owner and the trust that can result in the transfer of significant wealth by the deemed owner without transfer tax consequences”.

Yes, that’s what IDITS do! Which is why some politicians want to get rid of them. While the IDIT proposal may not be enacted, the combination of politicians looking for more money to spend and the pending expiration of the $5,000,000 gift tax exemption at the end of 2012 means any owner of any large estate should be seriously looking at how much the IDIT can save them before the opportunity disappears.

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