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More Advantages of an Intentionally Defective Grantor Trust

Advantages to You1

  • Estate taxes may be reduced by the sale of assets to the IDGT.
  • Using a promissory installment note for the sale, only the note balance is included in the estate, “freezing” the value of the asset in the estate.
  • A professional appraiser may be able to apply a valuation discount in determining the fair market value for the property to be sold. If valuation discounts can be used in determining the fair market of the property being sold, a lower sales price would result in a lower note receivable by the grantor, thus reducing the size of your taxable estate.
  • It is usually recommended that an initial “seed” gift be made -- approximately 10% of the sales price. Other than this gift, the grantor may not need to make further gifts to the IDGT.
  • There is no recognition of capital gains on the sale of the property to the IDGT.
  • Interest paid to you is received income tax-free.\
  • No gift is assessed on the income taxes you pay on IDGT income.
  • Using IDGT income to buy life insurance further leverages the transaction. Not only does the life insurance policy death benefit have the potential to dramatically increase the value in the IDGT passing to your heirs, the tax-deferred nature of the cash value accumulation in a permanent life insurance policy results in lower taxes for you, compared to the outcome if the IDGT generated income from taxable investments.
  • With a properly drafted trust, neither the appreciating, income-producing property nor the life insurance proceeds will be included in your taxable estate.
  • Your ability to make gift tax-free gifts using your annual gift exclusion amount is “freed-up” to allow you to transfer more wealth.

Advantages to Your Heirs1

  • They receive the value of the transferred assets as well as all of the growth and income of the assets.
  • The life insurance death benefit can increase the amounts received from the IDGT
  • The assets held in the IDGT can be protected from your heirs’ creditors (subject to state-specific applicable laws), including ex-spouses.

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Our mission in the Wealth Management business is to provide you with the clarity, confidence, and commitment to achieve your financial goals, giving you a new-found understanding of how much is possible.

1 Sedway Financial, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

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