?Defective? Trusts ? What's in a Word - Washington Estate Planning

Defective grantor trust is a really stupid
name for something that, in the right circumstances, can be a very good
idea.? Somewhere along the line somebody
realized that people might be disturbed by hearing that their trust was
defective so the term became Intentionally Defective Grantor Trust.? Kind of like ? ?Hey that defect in your
trust.? We put it there on purpose.? So you should feel good.?

If you are an estate planning
insider, then you understand the legal-speak, the acronyms, and maybe even the
latest estate law jokes. On the other hand, if you are not, then you may get
bogged down in some of the insider jargon and, well, find yourself downright
confused. So it is with ?defective? trust planning, as reported in a recent Forbes article titled ?Don't Freak Out If You Hear Your Trust Is
Defective.?

The defective grantor trust, and
more specifically the Intentionally Defective Grantor Trust (IDGT), is more
often than not the source of confusion estate planning greenhorns face. That?s
unfortunate. Why? Because so-called ?defective? trusts usually work pretty
well, and they work well precisely because they are defective.

Here?s the rub: sometimes you
want your trust to be a trust and sometimes you don?t, and a defective trust
only fails when you want it to. The heart of the matter, defective or
otherwise, is simply to say that there is a lot to learn about this weird
intersection between your life, unique legal entities, and weird tax laws that
we call estate planning.

In the end, you should know your
tools and how to use them. Work with an open and inquisitive mind, and then
work with competent counsel to examine your options.

Reference: Forbes
(October 15, 2012) ?Don't Freak Out If You Hear Your Trust Is
Defective?

Source: http://blog.moultonlaw.com/2012/10/defective-trusts-whats-in-a-word.html

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