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

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“Middleby 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.

“Middleby 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 Middleby 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 Middleby 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 Middleby 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 Middleby 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 Middleby 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 Middleby 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

Middleby 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 Middleby 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 Middleby 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 Middleby 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/ .

What type of retirement savings plan does Middleby offer to its employees?

Middleby offers a 401(k) retirement savings plan to its employees.

Is Middleby’s 401(k) plan available to all employees?

Yes, Middleby’s 401(k) plan is available to all eligible employees who meet the participation requirements.

Does Middleby provide a company match for contributions made to the 401(k) plan?

Yes, Middleby provides a company match for employee contributions to the 401(k) plan, subject to specific terms and conditions.

How can employees at Middleby enroll in the 401(k) plan?

Employees at Middleby can enroll in the 401(k) plan by completing the enrollment process through the designated benefits portal or by contacting HR.

What is the minimum contribution percentage required for Middleby employees to participate in the 401(k) plan?

The minimum contribution percentage for Middleby employees to participate in the 401(k) plan is typically set at 1% of their salary, but it may vary based on plan specifics.

Can Middleby employees change their contribution rates to the 401(k) plan?

Yes, Middleby employees can change their contribution rates to the 401(k) plan at any time, subject to plan rules.

What investment options are available in Middleby’s 401(k) plan?

Middleby’s 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles.

Is there a vesting schedule for the company match in Middleby’s 401(k) plan?

Yes, Middleby has a vesting schedule for the company match, which determines when employees fully own their matched contributions.

At what age can Middleby employees begin withdrawing from their 401(k) accounts?

Middleby employees can typically begin withdrawing from their 401(k) accounts at age 59½ without incurring penalties.

Are loans available from the 401(k) plan offered by Middleby?

Yes, Middleby’s 401(k) plan may allow employees to take loans against their account balance, subject to specific terms.

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