Two Totally Tricky Trusts To Save On Taxes | Estate Plan Pros
Happy your taxes are done? Me too. I’ll let you in on a little tax secret that not many trust attorneys or financial advisors know about: the same property can be taxed differently for estate tax purposes than for income tax purposes. Now, that may seem either a little too obvious or way too complicated depending on your perspective. But that difference has been used for years by experienced lawyers to help their clients avoid major tax hits by the IRS. The first trust reduces estate taxes by essentially gifting the property away into a trust called an IDGT, or Intentionally Defective Grantor Trust. The “defect” in this trust is by design: you continue paying taxes now like normal, but after you are gone, the assets in the IDGT are no longer in your estate, reducing your estate tax exposure. The tax split here is that you continue paying income taxes, but avoid estate taxes. If you have an estate with over $5 million as an individual or $10 million for a couple, you are looking at a potential estate tax bill of 40% or more. If you have an appreciating business interest for example, the IDGT offers a way to move assets outside of your estate now for less before appreciation occurs. The second trust is practically the reverse of the first – we complete a transfer to a trust, and make it pay income taxes, but the assets are in your trust for estate tax purposes. This type of trust is called an Incomplete-Gift Non-Grantor (ING) Trust. Why would we want to make the trust pay income taxes? Well, when we place the trust in a zero income tax state, like Nevada or Delaware, you can save big on income taxes. If you have a significant state tax problem, or large unrealized capital gains this type of trust may make sense for you. These strategies aren’t for everyone, but for people with big tax bills looking at these two trust strategies may make next April 15 a bit easier. Image courtesy of Arvind Balaraman at

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Erik Hartstrom

Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove.  Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.

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