Intentionally Defective Grantor Trust (IDGT) Law and Legal Definition

Intentionally Defective Grantor Trust (IDGT) is an irrevocable trust in which the grantor retains a controlling interest in trust-owned assets. These trusts are treated as an entity same as the grantor for income tax purposes. However, for estate-tax purposes is treated as an entity separate from the grantor. As the provisions in the trust cause the grantor to be the owner of the trust for income tax purposes, the trust income is taxable to him. Therefore such trusts are considered to be an "intentionally defective" grantor trust. This can be done by violating the grantor-trust rules of Internal Revenue Code §§ 671–677 in a way that does not affect the completeness of the gift under Internal Revenue Code §§ 2035–2042. The attribution of tax liability and payment of taxes on trust income do not give the grantor an ownership in the trust. It remains separate from the settlor's estate and is not subject to estate taxes.

Intentionally Defective Grantor Trust are also known as Defective Trusts.