An intentionally defective grantor trust (IDGT) is an irrevocable trust designed so that the grantor is treated as the owner for income-tax purposes but not for estate-tax purposes. The "defect" arises from retained powers (e.g., substitution) that trigger grantor-trust status under Subpart E while keeping trust assets outside the grantor's estate if 2036/2038 concerns are avoided. IDGTs allow sales or gifts of appreciating assets so growth accrues outside the estate while the grantor's payment of income tax further reduces the estate without additional gift tax.

Planners establish IDGTs to hold life insurance or appreciating assets. They use seed gifts or notes, substitution powers, and grantor-paid taxes to accelerate wealth transfer without additional gifts.