So what are one’s options when one has the requisite intention without the ability to write a check or transfer portfolio assets to a trust? For many reasons, I’m a fan of gifting one’s personal residence to an intentionally defective grantor trust (IDGT).
When it comes to transferring real estate, you have many options. However, one you ought to investigate is the Intentionally Defective Grantor Trust (IDGT).
The ins and outs of the venerable IDGT was explored recently in a Forbes article titled “Reduce Estate Taxes Without Reducing Your Liquidity.” It’s better not to wade too deeply into what makes an IDGT “intentionally defective,” except to say it creates a unique tax situation. Moving the real estate (perhaps your personal residence) into the IDGT will count as a gift in the year you make the transfer, even though you’ll still be living in the house. Effectively, you are setting up your own trust as a landlord, and yourself as tenant, complete with rent payments into your own trust. Properly done, in the process you will enjoy a great number of tax advantages.
Employing an IDGT to transfer the family home may be a perfect technique to maximize your wealth transfers, particularly in a soft real estate market with an uncertain estate and gift tax future.
Could an IDGT be a clever estate planning move for you? Seek professional counsel to find out more.
You can learn more about elder law planning on our website. Be sure to sign up for our complimentary e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.
Reference: Forbes (September 4, 2012) “Reduce Estate Taxes Without Reducing Your Liquidity”