Business owners are often reluctant to pass their business to the children too rapidly. An installment sale to an intentionally defective grantor trust, or “IDGT” can often reduce estate taxes by passing the value of the business to the children while allowing the parent to keep control of the company. Please see Revocable and Irrevocable Living Trusts for more about the basics of trusts.

An IDGT allows the parent to sell the company to an irrevocable trust in exchange for periodic payments on a note. Because the trust is designed to be a “grantor trust,” the income from the company is still taxed to the parent. However, the parent is no longer treated as the owner for estate tax purposes.

Use of an IDGT is appropriate in certain limited circumstances. If you own all or a portion of a company and are unsure how to pass it along to your children, please call us to determine how an IDGT or other planning technique can help.