loan to IDGT

loan to IDGT

Forum topic posted in Forum on 13 June 2008| 5 comments
audience: | last updated: 19 June 2008
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Offline
Joined: 12/14/2007
Points: 30
I am considering making a loan to a IDGT in an effort to remove the difference between what could be earned on the money loaned versus the government interest rate. If this was a sale to a IDGT I would be concerned with "seeding " the trust with an asset equal to 10% of my selling price. In a loan scenario is it anyone's view that I should meet this same 10% test or could i simply fund the trust with enough money to pay the first year's interest expense or some other amount?

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Offline
Joined: 10/29/2010
Points: 15
loan to IDGT
I have a client who wants to fund a business with $1 million for his son to run and eventually inherit. My thought is to use an IDGT, with $100,000 as a gift to the trust and $900,000 as an interest-only loan with a balloon payment at the back end. My question is how long does the trust have to be in existence before it is terminated and the assets distributed to the beneficiary (the son)? Is it like a QPRT in that the grantor has to outlive the trust in order for it to have the desired outcome or is the trust term simply tied to the note term and the amount of time it is expected to take for the business to appreciate to a certain level? The client is age 54 and the son is early 20's. Thanks
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Joined: 07/18/2008
Points: 15
Intentionally Defective Grantor Trust
What Is An Intentionally Defective Grantor Trust? A
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Joined: 07/05/2006
Points: 15
What is an IDGT?
What is an IDGT?
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Joined: 11/08/1999
Points: 15
loan to IDGT
I agree that the 10% funding threshold is a safe harbor. The transaction has to be commercially reasonable. Although I have seen IDGTs funded with less, with security agreements, etc., the safer approach is to fund the trust with 10% initial equity. The IDIT sale has to be characterized as an independent, arms-length financial transaction with proper valuations, etc.
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Joined: 12/12/2007
Points: 15
IDGT
Fred, I think you still have to meet the 10% seed requirement regardless of the funding method.
7520 Rates: December 26% November 2.4% October 2.2%

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