Tax Planning Guide for Selling Assets to an Intentionally Defective Grantor Trust (IDGT)

How a sale to an IDGT works G) Sell asset at fair market value to the trust in return for a promissory note bearing interest G) Sell asset to trust for a note at proper AFR* based upon term of loan —==> (EE @) Grantor IDGT @) Receive payments satisfying terms of note ©) Pay income taxontrust ecelve Remaining assets G) Pay income tax on trust income and realized income and Payments pass to beneficiaries* gain realized gain () After note is paid off, remaining assets in trust Beneficiaries are available, free of gift tax, for beneficiaries** To enhance the potential benefits consider funding a series of cascading GRATs - the remainders can be added to the IDGT If the cascading GRATs are successful, at the end of the cascading GRAT terms additional assets can be sold to the IDGT * AFRs are defined as: 1) short-term - not over three years; 2) mid-term - over three, but not over nine years; 3) long-term - over nine years. ** |f Grantor dies before note is satisfied, the fair market value of the note is includible in grantor’s estate. J.P Morgan 2 HOUSE_OVERSIGHT_022352