Irrevocable trust is out of the estate but still taxes its income to the grantor rather than at the 'compressed' rates of a complex trust is referred to as which of the following?

Irrevocable trust is out of the estate but still taxes its income to the grantor rather than at the 'compressed' rates of a complex trust is referred to as which of the following?

• A. RLT - Revocable Living Trust
• B. QTIP - Qualified Terminable Interest Property trust
• C. DING - Domestic Irrevocable Non-Grantor trust
• D. IDGT - Intentionally Defective Grantor Trust

Answer: (D)

Intentionally Defective Grantor Trusts are designed to be out of the grantor’s estate for transfer tax purposes, while still having the grantor taxed on the trust’s income. This arrangement is achieved by structuring the trust so it’s "defective" for income tax purposes under grantor trust rules, making the grantor the owner of the trust’s income. As a result, the trust itself is not included in the estate, but the grantor pays the income taxes on the trust’s earnings at his or her personal rate rather than at the compressed tax brackets that apply to non-grantor or complex trusts. That combination—assets outside the estate with tax liability borne by the grantor—best fits the description. The other options don’t match: a revocable living trust generally remains part of the estate and is not set up to shift tax treatment this way; a QTIP is a marital deduction vehicle with distinct tax rules; a non-grantor irrevocable trust is taxed as a separate entity, not to the grantor.

Intentionally Defective Grantor Trusts are designed to be out of the grantor’s estate for transfer tax purposes, while still having the grantor taxed on the trust’s income. This arrangement is achieved by structuring the trust so it’s "defective" for income tax purposes under grantor trust rules, making the grantor the owner of the trust’s income. As a result, the trust itself is not included in the estate, but the grantor pays the income taxes on the trust’s earnings at his or her personal rate rather than at the compressed tax brackets that apply to non-grantor or complex trusts. That combination—assets outside the estate with tax liability borne by the grantor—best fits the description.

The other options don’t match: a revocable living trust generally remains part of the estate and is not set up to shift tax treatment this way; a QTIP is a marital deduction vehicle with distinct tax rules; a non-grantor irrevocable trust is taxed as a separate entity, not to the grantor.