Intentionally Defective Grantor Trust
(Joint Settlors, Single Beneficiary) (TX)

Summary

This template is an intentionally defective grantor trust by joint settlors for a single beneficiary and is a trust agreement of a gift of assets or a sale of assets for estate tax purposes, but where the settlors do not want the transaction to affect the income tax treatment of the assets. It is for use in Texas. This template includes practical guidance, drafting notes, and optional clauses. This template is for use by a couple or person (often a parent or grandparent of the beneficiary) who wishes to benefit one of child or grandchild via the gift of assets in Texas. This trust is classified as a grantor trust for income tax purposes so that any income of the trust would be taxed to the settlors of the trust. Therefore, for income tax purposes, any transactions between the settlors and the trust are basically treated as transactions with themselves and are ignored for income tax purposes. As a result, sales are not considered sales for income tax purposes. The income earned within the trust will be taxed to the settlors as if they owned all of the assets themselves. The trust is also irrevocable, meaning that no one can modify or revoke the trust or any of its terms once it has been entered into by the settlors. This type of trust is commonly used as an "estate freeze" technique. For a full listing of key content related to estate plans for married or partnered people in Texas, see Estate Plan for Individual with Spouse or Partner Resource Kit (TX). For further discussion of trusts, see Characteristics and Uses of Trusts (TX) and Requirements and Restrictions on Trust Purposes and Administration (TX).