When "Defective" Is Desirable – Pre-Immigration Planning for Families with U.S. Persons

Volume 5 No 3    |    Read Article

By Fanny Karaman and Nina Krauthamer

The term “intentionally defective” sounds problematic, but in reality, is quite favorable when it comes to estate planning. Intentionally defective grantor trusts are an especially useful tool when combined with pre-immigration planning for a family where only one spouse is a U.S. citizen because these trusts are disregarded for income tax purposes but respected for estate tax purposes. If set up and funded by a non-citizen spouse before arrival in the U.S., gift and estate tax planning can be achieved in a low tax environment. In these trusts, the settlor continues to pay tax on the income even though not a beneficiary. As a result, the beneficiary does not pay income tax on trust distributions and the tax payment by the grantor is not considered to be gift to the beneficiary. Hence, no gift tax. Fanny Karaman and Nina Krauthamer explain all.    See more →