Intentionally defective grantor trust
Certified Financial Planner glossary · Certified Financial Planner
Definition
A trust treated as owned by the grantor for income tax but generally outside the estate for estate tax when structured correctly.
Intentionally defective grantor trust in plain English
A planner says the trust is "outside the estate," and the client assumes they can stop paying the trust's income tax personally. An intentionally defective grantor trust is treated as owned by the grantor for income tax, yet can sit outside the estate for estate tax when structured correctly. Confusing income-tax grantor status with estate inclusion mixes two different systems. Keep those tax questions separate on the stem before you advise who pays the tax or what is includible.
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