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

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“Lockheed Martin 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.

“Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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

Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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 Lockheed Martin 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/ .

How does Lockheed Martin determine the monthly pension benefit for employees nearing retirement, and what factors should employees consider when planning their retirement based on this calculation? Specifically, how do the concepts of "Final Average Pay" and "Credited Years of Service" interact in the pension calculation under Lockheed Martinâ€™s retirement plan?

Lockheed Martin Pension Calculation: Lockheed Martin calculates monthly pension benefits using the "Final Average Pay" (FAP) and "Credited Years of Service" (CYS). The FAP is determined by averaging the three highest annual compensations prior to 2016, while CYS counts the years from employment start to December 31, 2019, when the pension was frozen. The benefit per year of service is calculated based on whether the FAP is less than or exceeds the Social Security Covered Compensation, with specific formulas applied for each scenario. These calculations directly affect the monthly pension benefit, which may also be reduced if retirement commences before a certain age due to early retirement penalties.

Given the recent changes in Lockheed Martin's pension policy, what implications could this have for employees who are planning to retire in the near future? How should these employees navigate their expectations regarding retirement income given that the pension has been frozen since 2020?

Implications of Pension Freeze: Since Lockheed Martin froze its pension plan in 2020, no future earnings or years of service will increase pension benefits. This freeze shifts the emphasis towards maximizing contributions to 401(k) plans, where Lockheed Martin increased its maximum contribution to 10% for non-represented employees. Employees planning for imminent retirement should recalibrate their financial planning to account for this change, prioritizing 401(k) growth and other retirement savings vehicles to compensate for the pension freeze.

What options does Lockheed Martin provide for employees regarding healthcare insurance as they approach retirement age? How do these options compare in terms of coverage and cost, particularly for those who will transition to Medicare upon reaching age 65?

Healthcare Options Near Retirement: As Lockheed Martin employees approach retirement, they can choose from several health insurance options. Before Medicare eligibility, they may use COBRA, a Lockheed Martin retiree plan, or the ACA's private marketplace. Post-65, they transition to Medicare, with the possibility of additional coverage through Medicare Advantage or Medigap plans. Lockheed Martin supports this transition with a Health Reimbursement Arrangement, providing an annual credit to help cover medical expenses.

Understanding the complex nature of Lockheed Martin's pension and retirement benefits, what resources are available to employees to help them navigate their choices regarding pension claiming options? In what ways can the insights from these resources aid employees in making informed decisions about their financial future?

Resources for Navigating Retirement Benefits: Lockheed Martin employees have access to resources like the LM Employee Service Center intranet, which includes robust tools such as a pension estimator. This tool allows for modeling different retirement scenarios and understanding the impacts of various pension claiming options. Additional support is provided through HR consultations and detailed plan descriptions to ensure employees make informed decisions about their retirement strategies.

For employees with varying years of service at Lockheed Martin, how can their employment history impact their pension benefits? What strategies should individuals explore to maximize their benefits given the different legacy systems that might influence their retirement payout?

Impact of Employment History on Pension Benefits: The length and nature of an employee’s service at Lockheed Martin significantly influence pension calculations. Historical changes in pension policies, particularly the transition points of the pension freeze, play critical roles in determining the final pension benefits. Employees must consider their entire career timeline, including any represented or non-represented periods, to understand and maximize their eligible pension benefits fully.

How does the Lockheed Martin retirement plan ensure that benefits are preserved for spouses or dependents after an employee's passing? How do different claiming options affect the long-term financial security of the employee's family post-retirement?

Benefit Preservation for Dependents: Lockheed Martin's pension plan includes options that consider the welfare of spouses or dependents after an employee's passing. Options like "Joint and Survivor" ensure ongoing benefits for surviving spouses, while choices like "Life with X-Year guarantee" provide continued payments for a defined period after the employee’s death. Understanding these options helps secure long-term financial stability for beneficiaries.

What steps can Lockheed Martin employees take to prepare financially for retirement, especially if they have outstanding loans or financial obligations? How crucial is it for employees to understand the conditions under which these loans must be settled before retirement?

Financial Preparation for Retirement: Employees approaching retirement should focus on clearing any outstanding loans and maximizing their contributions to tax-advantaged accounts like 401(k)s and Health Savings Accounts (HSAs). These steps are crucial for ensuring a smooth financial transition to retirement, minimizing potential tax impacts, and maximizing available retirement income streams.

With the evolution of Lockheed Martin's retirement initiatives, particularly the shift toward higher 401(k) contributions, how should employees balance contributions to their 401(k) with their overall retirement savings strategy? What factors should they consider in optimizing their investment choices post-retirement?

Balancing 401(k) Contributions: With the pension freeze, Lockheed Martin employees should increasingly rely on 401(k) plans, where the company has increased its contribution cap. Employees must balance these contributions with other savings strategies and consider their investment choices carefully to ensure a robust retirement fund that can support their post-retirement life.

How does Lockheed Martin's approach to retirement planning include the management of health savings accounts (HSAs) for retirees? What are the tax advantages of HSAs, and how can employees effectively utilize this resource when planning for healthcare expenses in retirement?

Management of HSAs for Retirees: Lockheed Martin encourages maximizing contributions to Health Savings Accounts (HSAs), which offer significant tax advantages. These accounts not only provide funds for current medical expenses but can also be used tax-free for healthcare costs in retirement, making them a critical component of retirement health expense planning.

What is the best way for employees to contact Lockheed Martin regarding specifics or questions about their retirement benefits? What channels of communication are available, and how can they access the most current and relevant information regarding their retirement planning? These questions aim to encourage thoughtful consideration and discussion about retirement planning within Lockheed Martin, addressing various aspects of the company's benefits while promoting engagement with internal resources.

Contacting Lockheed Martin for Retirement Benefit Queries: Employees should direct specific inquiries about their retirement benefits to Lockheed Martin's HR department or consult the benefits Summary Plan Descriptions available through company resources. These channels ensure employees receive accurate and comprehensive information tailored to their individual circumstances.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Lockheed Martin offers both a traditional defined benefit pension plan and a defined contribution 401(k) plan. The defined benefit plan includes a cash balance component, where benefits grow based on years of service and compensation, with interest credits added annually. The 401(k) plan features company matching contributions and various investment options such as target-date funds and mutual funds. Lockheed Martin provides financial planning resources and tools to help employees manage their retirement savings.

Operational Efficiency: Lockheed Martin is restructuring its operations to improve efficiency and reduce costs, including layoffs affecting around 1,000 employees (Source: Reuters). Strategic Focus: The company is focusing on its core defense and aerospace segments. Financial Performance: Despite these changes, Lockheed Martin reported a 5% increase in net sales for Q3 2023, driven by strong demand for its defense products (Source: Lockheed Martin).

Lockheed Martin grants RSUs that vest over several years, giving employees shares of the company. Additionally, stock options are provided, allowing employees to purchase shares at a set price and potentially benefit from stock price increases.

Lockheed Martin has been proactive in enhancing its employee healthcare benefits to align with the evolving economic, investment, tax, and political environment. In 2022, the company expanded its health and wellness programs, which included on-site health centers and comprehensive medical, dental, and vision coverage. These initiatives were part of Lockheed Martin's broader strategy to support the physical and emotional well-being of its employees, recognizing that a healthy workforce is crucial for maintaining productivity and engagement. The company also focused on increasing transparency in healthcare costs, ensuring employees have access to detailed information about their medical expenses. In 2023, Lockheed Martin continued to build on these efforts by offering enhanced mental health support and flexible work schedules to better accommodate employees' personal and professional lives. The company's benefits package includes competitive compensation, on-site health and wellness centers, and financial tools to help employees manage their finances effectively. These comprehensive benefits are designed to create a supportive and inclusive work environment, essential for attracting and retaining top talent in today's competitive job market. By investing in robust healthcare benefits, Lockheed Martin aims to foster a resilient workforce capable of navigating the complexities of the current economic landscape.

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For more information you can reach the plan administrator for Lockheed Martin at 6801 rockledge drive Bethesda, MD 20817; or by calling them at 863-647-0370.

https://www.lockheedmartin.com/documents/pension-plan-2022.pdf - Page 5, https://www.lockheedmartin.com/documents/pension-plan-2023.pdf - Page 12, https://www.lockheedmartin.com/documents/pension-plan-2024.pdf - Page 15, https://www.lockheedmartin.com/documents/401k-plan-2022.pdf - Page 8, https://www.lockheedmartin.com/documents/401k-plan-2023.pdf - Page 22, https://www.lockheedmartin.com/documents/401k-plan-2024.pdf - Page 28, https://www.lockheedmartin.com/documents/rsu-plan-2022.pdf - Page 20, https://www.lockheedmartin.com/documents/rsu-plan-2023.pdf - Page 14, https://www.lockheedmartin.com/documents/rsu-plan-2024.pdf - Page 17, https://www.lockheedmartin.com/documents/healthcare-plan-2022.pdf - Page 23