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How Fiserv Employees Can Use Intentionally Defective Grantor Trusts (IDGTs) in Estate Planning

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“Fiserv employees reviewing IDGTs can benefit from understanding how these trusts may support long-term legacy planning, although qualified legal and tax professionals should review these strategies to determine whether they fit into their overall goals.” ~ Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

“Fiserv employees considering an IDGT should recognize how this strategy may support long-term wealth transfer goals, although these structures should be reviewed with qualified legal and tax professionals to determine whether they align with each household’s broader plan.” ~ Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

How intentionally defective grantor trusts (IDGTs) work.
The advantages and potential limitations of using an IDGT.
Key considerations for Fiserv employees evaluating this type of planning strategy.

An irrevocable trust arrangement known as an intentionally defective grantor trust (IDGT) allows the grantor to move assets out of their taxable estate while still being treated as the owner of those assets for income tax purposes. Many people, including Fiserv employees with high-growth or income-producing holdings, may benefit from using this strategy to support long-term wealth preservation.

How an Intentionally Defective Grantor Trust Works

For tax purposes, different kinds of trusts receive different treatment, and understanding the distinctions can help Fiserv professionals review planning strategies more effectively.

Revocable Trusts

In a revocable trust, the grantor is taxed on trust income and is regarded as the owner for income tax purposes. A separate trust income tax return is usually unnecessary. These assets generally remain inside the grantor’s taxable estate because the grantor maintains full control.

Irrevocable Trusts

An irrevocable trust is treated as its own tax entity, filing its own return and taking its own deductions. When properly drafted so the grantor does not retain certain powers or interests, assets transferred to an irrevocable trust are generally removed from the taxable estate, a detail that can matter for Fiserv professionals with substantial savings or investment holdings.

How IDGTs Combine These Features

An IDGT is structured as an irrevocable trust for estate and gift tax purposes, removing assets from the taxable estate, but is treated as a grantor trust for income tax purposes. As long as the grantor pays income taxes on trust earnings, the trust’s assets can grow outside the estate, which may appeal to Fiserv professionals with long-term legacy goals.

Why It’s Called “Intentionally Defective”

The trust is drafted so that, under IRS grantor-trust rules, the grantor remains the owner for income tax purposes due to certain retained powers. At the same time, the trust is irrevocable for estate tax purposes, allowing the assets to remain outside the taxable estate—a structure that may assist with multigenerational planning.

Advantages of an Intentionally Defective Grantor Trust

Because an IDGT is a grantor trust for income tax purposes, the grantor pays income tax on trust earnings. This leads to two important benefits that may interest Fiserv employees with high-value assets:

- Trust assets can grow for beneficiaries without being reduced by income tax payments.
- Income tax paid by the grantor reduces the taxable estate without being classified as a gift.

- This dynamic—where grantors use personal funds to pay taxes that would otherwise reduce trust assets—is often referred to as a “tax burn.”

How Assets Are Transferred to an IDGT

Fiserv employees reviewing wealth transfer strategies may encounter two common approaches:

1. Gift or Partial Gift/Sale

A grantor can move assets to an IDGT as a gift. If the gift stays within the lifetime gift and estate tax exemption, it typically does not create out-of-pocket gift tax. Some planning approaches combine a partial gift with a sale to balance estate goals.

2. Sale to the IDGT

Many grantors sell assets to an IDGT in exchange for a promissory note with an interest rate at or above the IRS Applicable Federal Rate (AFR).

- The sale is typically not treated as a taxable gift if conducted at fair market value.
- Appreciation above the AFR occurs outside the grantor’s estate for beneficiaries.
- When AFR rules and loan requirements are followed, the note is treated as valid consideration and carries an interest obligation.

Potential Drawbacks of an IDGT

Once established, an IDGT is difficult to modify, similar to other irrevocable trusts. Outcomes also depend on the trust assets growing at a rate higher than the AFR. If that does not occur, the intended estate planning benefits may fall short—an important consideration for Fiserv employees reviewing various asset types.

Who Might Consider an IDGT?

An IDGT can be appealing for families facing potential estate tax exposure, especially when transferring assets with strong growth potential. This approach works best when the grantor has sufficient liquidity to continue paying the trust’s income taxes personally, a factor some Fiserv employees review when assessing retirement and estate liquidity. Because the structure requires precise legal drafting, it should be established with qualified legal counsel.

Need Support with IDGTs or Retirement Planning?

The Retirement Group can assist you in reviewing whether an IDGT fits into your broader retirement and estate plan as a Fiserv employee. For guidance tailored to your long-term goals, call us at (800) 900-5867 .

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Sources:

1. BMO Wealth Management. Herman, Brad. Intentionally Defective Grantor Trust. BMO Financial Group, Oct. 2021,
https://uswealth.bmo.com/media/filer_public/8b/3f/8b3f85c6-21b0-407e-bfbf-0f9b181c1673/bwm_idgtarticle_1103.pdf .

2. Fidelity Wealth Management. “What Is an Intentionally Defective Grantor Trust (IDGT)?” Fidelity Viewpoints , 4 Dec. 2025,
https://www.fidelity.com/viewpoints/wealth-management/insights/intentionally-defective-grantor-trusts .

3. Hirtle, Callaghan & Co. Estate Planning With Intentionally Defective Grantor Trusts.
Hirtle, Callaghan & Co., 2020,
https://www.hirtlecallaghan.com/wp-content/uploads/2020/08/Intentionally-Defective-Grantor-Trusts.pdf .

4. Nevada Trust Company. Ford-Grella, Jaclyn. “How Intentionally Defective Grantor Trusts Can Safeguard Assets for Future Generations.” Nevada Trust Company , 10 Dec. 2024,
https://www.nevadatrust.com/how-intentionally-defective-grantor-trusts-can-safeguard-assets-for-future-generations/ .

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Fiserv offers a comprehensive retirement program for its employees, which includes both a 401(k) plan and a pension plan. The 401(k) plan allows employees to contribute on a pre-tax basis, or on a post-tax basis through the Roth 401(k) feature. Fiserv matches 100% of the first 1% of an employee's contribution, and 50% of the next 4% of eligible compensation, providing a potential match up to 3% (Working at Fiserv, Inc.). This 401(k) plan, named the Fiserv Employee Savings Plan, is administered through Vanguard (Working at Fiserv, Inc.). In addition to the 401(k), Fiserv also offers a defined benefit pension plan for long-serving employees, depending on their hire date (Working at Fiserv, Inc.). This plan typically includes employees who were part of First Data Corporation before its acquisition by Fiserv. The pension plan's eligibility criteria involve a combination of years of service and age qualification; typically, employees need at least five years of service and must be of retirement age, which is usually defined as 65 (Working at Fiserv, Inc.). However, specific details regarding the pension formula and years of service requirements were not explicitly stated on the documents accessed.

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