Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, September 30, 2011

The IDGT Loophole

Dan ricksDaniel Ricks (attorney, Costa Mesa, CA) recently published his article entitled, I Dig It, But Congress Shouldn’t Let Me: Closing the IDGT Loophole, 36 ACTEC L. J. 641 (2010). The abstract available on SSRN is below:

By combining three tools that independently are beneficial to taxpayers, clever estate planners have devised a transaction - the installment sale of discounted assets to an intentionally defective grantor trust - that saves their ultra-wealthy clients millions of dollars in estate and gift taxes. This transaction, which is a foundational part of many estate plans, takes advantage of rules that Congress never intended to be used in this way. Because the Internal Revenue Service has conceded its inability to challenge the transaction based on current law, any solution lies with Congress. This Article proposes an amendment to § 2036 that would close the hole in the transfer tax base by eliminating taxpayers’ ability to form intentionally defective grantor trusts. Because this simple, targeted proposal leaves intact nearly all of current law, it could be adopted quickly as an interim solution in anticipation of fundamental tax reform.


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