Transfer Wealth Strategically With Advanced Trust Planning
An Intentionally Defective Grantor Trust (IDGT) can be a powerful strategy for transferring appreciating assets while supporting long-term estate and wealth planning goals. Crowne Point helps high-net-worth individuals and families evaluate IDGT strategies as part of a comprehensive tax and wealth plan.
An Intentionally Defective Grantor Trust (IDGT) is an irrevocable trust that is deliberately structured to be treated as a separate entity for estate tax purposes. So, trust assets fall outside the grantor’s taxable estate whilst remaining a grantor’s trust for income tax purposes, meaning the grantor pays the trust’s income taxes personally.
The “defect” is intentional and strategic. By paying the trust’s income taxes each year, the grantor effectively makes an additional tax-free gift to the trust beneficiaries equal to the tax liability absorbed. Meanwhile, the trust assets grow without being eroded by income tax payments. Over time, the combination of estate exclusion and income-tax absorption can transfer substantial wealth in a way no other single instrument achieves.
IDGT Estate Planning also enables a powerful secondary strategy: the installment sale. A grantor can sell an appreciated asset to the Defective Grantor Trust at fair market value in exchange for a promissory note. Because the grantor and the trust are treated as the same taxpayer for income tax purposes, no capital gains are triggered on the sale, yet the asset and all its future appreciation are removed from the taxable estate at a fixed, frozen value.
Our IDGT Planning is built around your specific assets, transfer goals, and the broader layered architecture it sits within — designed to integrate income shifting, basis planning, and estate exclusion from the outset.
Every Intentionally Defective Grantor Trust must be individually designed. We draft each IDGT around the asset being transferred, the family's income and estate tax position, and the trust's intended role within the wider SLAT, GRAT, and dynasty trust architecture.
The installment sale is the engine of most IDGT Estate Planning engagements. We structure and document the sale of an appreciated business interest, closely held stock, or real estate to the Defective Grantor Trust at a frozen value with no capital gains triggered and all future appreciation accruing inside the trust.
Each year the grantor pays income taxes on the trust's earnings, the grantor's taxable estate shrinks by the amount of that tax payment — an additional, invisible gift to the beneficiaries. We model this benefit across the trust's expected life and coordinate it with your broader income tax planning.
IDGT Planning is a long-term commitment. We provide the annual trust accountings, fiduciary returns, and structure reviews that keep each Intentionally Defective Grantor Trust defensible and productive across its full life.
A Defective Grantor Trust is one of the most powerful instruments in IDGT Estate Planning and one of the most technically demanding to execute correctly. These are the elements no engagement can overlook.
the specific power that creates the income-tax defect must be chosen carefully. Too broad a power can create estate inclusion risk; too narrow a power may not achieve grantor trust status. We select and document the right power for each structure
the IDGT must be funded with an initial gift sufficient to establish it as a bona fide trust before the installment sale closes. An undercapitalized IDGT risks IRS recharacterization of the sale as a gift
the installment note must carry at least the applicable federal rate to avoid gift tax treatment on the interest discount. We set and document the AFR at the time of sale
the asset sold to the Defective Grantor Trust must be valued accurately and supportably. For closely held businesses, discounts for minority interest and lack of marketability require independent appraisals that can withstand scrutiny
if the grantor trust powers are ever released or the grantor dies, the trust's income tax treatment changes. We build contingency provisions and monitor this risk across the trust's life
These are the details that distinguish a properly engineered IDGT Trust Planning structure from a document that looks correct on paper but creates problems under audit or at the grantor’s death.
Intentionally Defective Grantor Trust planning suits a specific kind of client — those with appreciated assets, significant income tax exposure, and a clear intent to transfer value across generations.
Closely held business owners who want to transfer a business interest to the next generation at a frozen value, without triggering capital gains on the sale, through an installment sale to a Defective Grantor Trust
Founders and executives holding pre-IPO or closely held equity who want to freeze current valuation and remove all future appreciation from their taxable estate before a liquidity event
Multi-generational families building a layered architecture where the IDGT plays the income-shifting and basis-freezing role alongside SLATs, GRATs, and dynasty trusts
High-income taxpayers seeking to use annual income tax payments on trust earnings as a compounding, tax-free gift to beneficiaries over time
We are candid about fit. IDGT Planning requires accepting irrevocability, the seed gift obligation, and the ongoing income tax payment responsibility that comes with grantor trust status. Families who want the transfer benefit without those disciplines are not the right engagement.
IDGT Trust Planning sits at the intersection of income tax, estate tax, and business valuation — three disciplines that must work together precisely for the structure to deliver its full benefit. Crowne Point Tax & Wealth Counsel coordinates all three under one team.
Nik Agharkar integrates legal drafting with income and estate tax modeling in every IDGT engagement
Intentionally Defective Grantor Trust planning sits within a layered architecture that includes SLATs, GRATs, and dynasty trusts, not a standalone document service
every sale to the IDGT is supported by independent valuations, properly set AFR notes, and documentation built to withstand IRS scrutiny
we accept IDGT Estate Planning engagements for the full life of the structure, including grantor trust monitoring, annual tax returns, and eventual trustee transitions
Based in Ramsey, New Jersey, Crowne Point serves clients in New York and throughout the United States with sophisticated tax and wealth planning.
We do not just draft the instrument. We build an IDGT Planning structure designed to freeze value, absorb taxes, and transfer wealth for decades.
We review your asset profile, estate position, and transfer goals in a focused consultation at our Ramsey, NJ office.
We design the IDGT, selecting grantor trust powers, trustee roles, and beneficiary provisions matched to your layered architecture.
We coordinate the initial seed gift that capitalizes the trust before the installment sale closes.
We structure and document the sale of your assets to the Defective Grantor Trust, including appraisals, AFR notes, and closing documents.
We model the annual income tax absorption benefit and coordinate it with your personal tax planning.
We manage annual trust accountings, fiduciary returns, note payment tracking, and structure reviews for the full life of the trust.
The grantor sells an appreciated asset to the Defective Grantor Trust at fair market value in exchange for a promissory note at the applicable federal rate. Because grantor and trust are the same income-tax taxpayer, no capital gains arise, yet the asset and its future appreciation leave the taxable estate.
Yes. Crowne Point is based in Ramsey, New Jersey, and works with individuals and families in New York on sophisticated estate, tax, and wealth transfer planning.
The income-tax defect is created deliberately by retaining a specific power in the trust document. This makes the grantor responsible for the trust’s income taxes, shrinking the grantor’s estate annually whilst the trust assets grow tax-free, compounding the wealth transfer benefit over time.
Before the installment sale closes, the IDGT must receive an initial seed gift, typically 10% of the sale price to establish the trust as a bona fide entity with economic substance. Without an adequate seed gift, the IRS may recharacterize the entire transaction as a gift.
The grantor’s death changes the trust’s income-tax status from a grantor trust to a non-grantor trust, and the installment note typically becomes a claim against the estate. We build contingency provisions into every structure to manage this outcome and minimize disruption.
In a layered architecture, the IDGT typically plays the business-transfer and income-shifting role, whilst the SLAT provides spousal access, and the GRAT captures near-term appreciation. Together, each instrument addresses a different tax problem, compounding the overall estate transfer benefit.
Yes. Closely held business interests and pre-IPO equity are among the most effective assets for IDGT Trust Planning. The installment sale freezes current valuation whilst all future appreciation including post-IPO gains accrues inside the trust outside the grantor’s taxable estate.
An IDGT can be an important component of a long-term wealth transfer strategy when properly structured and coordinated with your broader estate and tax plan.