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IDGT Back to Top

IDGT stands for Intentionally Defective Grantor Trust. This is a trust which is structured (in terms of the language in the trust document and its operations) so that it will be treated for income tax purposes as a "grantor trust". A grantor trust is a trust that you set up and transfer property to, but which is taxed to you for income tax purposes. The most common of such trusts is the popular revocable living trust.

When most estate planners speak of an IDGT, they are really referring to an IDIGT, which is an Intentionally Defective Irrevocable Grantor Trust. This is a trust, as above, but which cannot be changed (irrevocable). A popular use of such trusts is for the grantor, the person setting up the trust, to sell assets to the trust. Because the trust is irrevocable the intent is that the value of the assets sold is removed from the grantor's estate for tax and asset protection purposes. However, since the trust is a grantor trust no income tax has to be recognized on this sale. These are highly complex transactions. Compare to a GRAT.

ILIT Back to Top

Irrevocable Life Insurance Trust. See definition of life insurance trust.

Immunization Back to Top

The process of substituting nonvolatile asset for highly appreciated assets inside a GRAT (grantor retained annuity trust). For example, if you establish a two year GRAT to hold financial equities and after 18 months realize a 35% appreciation. In order to lock in that gain, you as the grantor may use a power to substitute (assuming this power was given to you under the trust document, and typically it is in order to assure grantor trust status) to substitute Treasury bills or cash for these more volatile equities in order to avoid any decline in value inside the GRAT.

Note, if you opt for a longer term GRAT, you probably should not immunize the GRAT with cash or near cash items if there are years to run for the GRAT. In such instances you might prefer to immunize with a conservative asset allocation instead.

Improvements Back to Top

Payments for additions or betterment to property that will last more than a year and must thus be added to your investment (capitalized as part of your basis) in the property.

Incapacitated Person Back to Top

A person who is disabled and unable to act. Many legal arrangements include provisions addressing incapacity. A revocable living trust may trigger a successor trustee if the grantor (the person who set up the trust) is incapacitated; a durable power of attorney may spring into effect if the grantor (person signing the power) is incapacitated; an employment agreement may reduce and then eliminate your salary if you are incapacitated, and at some point terminate your employment. Definitions of what constitutes incapacity, whether a partial incapacity will be addressed and if so how, the legal requirements of maintaining and protecting confidential medical information (HIPAA) and how that impacts determining incapacity, etc. should all be considered.

Incentive Trust Back to Top

A trust is an arrangement in which you (grantor) establish a legal arrangement (trust) the details of which are set forth in a document (trust agreement) in which a person manages the trust (trustee) for the benefit of the people you name, e.g. a child (beneficiary). When an incentive trust is used the purpose and structure of the trust are intended to motivate (provide incentive) the beneficiary. For example, if the beneficiary earns $30,000 the trust may match it. If the beneficiary does not earn any income the trust may pay nothing, or perhaps only provide for medical care. There are a host of issues in planning such a trust to really accomplish its goals. A major problem is defining what types of behavior deserve reward. Too often incentive trusts reward economic return. What of the beneficiary devotes her life to charitable activities where little income can be earned, while another child sets up a business of questionable moral benefits and earns a substantial income. The child making the greatest contribution to society gets little reward, and the child arguably damaging society receives the most reward.

Indexing Back to Top

The estate tax “Basis Exclusion Amount” is to be indexed for inflation (from 2010) beginning in 2012. If the estate tax relief provisions are not extended, that will be the only year of increase since the law reverts to pre-2001 law after that point (i.e., in 2013). Be careful in that the unused exemption from a deceased spouse is not indexed after their death.

Inflation Indexing of the Estate Tax Exemption Back to Top

The exemption amount is indexed beginning in 2012. This could also prove an incremental cost that will likely enhance the burden of the congressional estate tax generosity on the federal fiscal budget in future years.

Section 302 of the 2010 TRA: (B) Inflation adjustment.—In the case of any decedent dying in a calendar year after 2011, the dollar amount in subparagraph (A) shall be increased by an amount equal to—(i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2010 for calendar year 1992 in subparagraph (B) thereof. If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.

Inheritor's Trust Back to Top

Generally just a typical child's trust, but denominated with a name that implies something more. A well planned trust for any heir, prepared with the heir's perspective in mind, could be referred to as an inheritor's trust. For example, if your parents are going to leave you an inheritance out right (i.e., no trust, just directly to you) there are significant advantages to establishing a trust to receive the inheritance for you. It can avoid any estate tax on your death, protect the assets you receive from lawsuits or divorce, and more.

Installment Sale Back to Top

A sale in which taxable gain is recognized over a number of years as the payment for the property sold is received. If you are a dealer in property, you can't use the installment method. See Dealer.

Institutional Trustee Back to Top

A bank or trust company can serve as a trustee of a trust. They are referred to as an "institutional trustee". Many trust documents require the appointment of an institutional trustee for a range of reasons. The most common is professional management of assets, and independence. However, there are many purposes for naming an institution. Another example is that you may wish a trust you set up to be able to be governed by the laws of a state, such as Delaware, which has very sophisticated and favorable laws for trusts. If you live in another state, you might have to appoint a bank or trust company in Delaware to serve as a trustee or co-trustee in order to avail yourself of the laws in Delaware.

Insurance Trust Back to Top

An irrevocable trust established to own your insurance policies and thereby prevent them from being included in your estate.

Inter-vivos Back to Top

A phrase meaning between the living. An inter-vivos gift is a gift made by you to another living person. An inter-vivos trust is a trust established while you are alive (in contrast to a testamentary trust established under your will when you die).

Inter-Vivos Trust Back to Top

A trust established during your lifetime. Also called a "living trust". Contrast an inter-vivos trust formed during your life with a testamentary trust formed at your death (e.g., under your will). Many assume that an inter-vivos trust is a revocable living trust (the type of trust often used to avoid probate), when in fact many types of trusts can be formed during your lifetime.

Intestate Back to Top

When someone dies without a will they are said to die "intestate". If this occurs, state law will determine who will be in charge of administering their estate and who will inherit assets in the estate. Since these laws are simplistic and generic they can never substitute for a will. Sometimes disclaimers (renunciations, refusing to accept an inheritance) can be used to shift assets to where they should be inherited when an intestacy occurs.

Investment Interest Limitation Back to Top

Interest incurred on debt used to carry investment assets can only be deducted to the extent of investment income. The tax laws generally prohibit your including gains on the sale of investment assets in this calculation. There is an exception, however, where you make a special election to tax your capital gains at a higher tax rate.

Investment Tax Credit Back to Top

A credit against tax which reduces your tax liability dollar for dollar. The rehabilitation tax credit and low income housing tax credit are still available.

Involuntary Conversion Back to Top

When your property is destroyed (converted) by a casualty loss and you receive an insurance payment, you can avoid a current tax cost by reinvesting the money in qualifying replacement property within four years after the close of the tax year in which the conversion occurred.

Irrevocable Back to Top

When a trust cannot be changed after you've established it, the trust is irrevocable. This is an essential characteristic in having the assets you give to the trust removed from your estate.

ITF Back to Top

ITF is an abbreviation for "in trust for". It is a simple method of titling (holding or owning) a bank or brokerage account that will transfer automatically on death to the person named. For example, "Jane Doe ITF Little Doe" is an account owned by Jane Doe (and taxed in her estate if her estate is large enough) that on Jane's death will automatically pass to Little Doe without the need to go through probate. While this is often looked at as a positive (i.e., avoiding probate) it can raise a host of issues and problems. If Little Doe is a minor, has litigation risks (e.g., she is a doctor), or is irresponsible, a better approach (if the amount of money warrants) would be to have the assets pass under Jane's will (or revocable trust if you really want to avoid probate) and into a trust for Little Doe to protect against these issues. Also, ITF and other non probate accounts can raise issues as to which assets/beneficiaries bear tax and other costs, how goals of equalizing bequests to various beneficiaries can be achieved, etc. Finally, be careful as the terms and implications of the ITF account can vary. This is really not a decision to be made with a bank teller when you open your accounts, but rather with an estate planning expert.