More HH Legal Updates

Houston Harbaugh is a full service law firm headquartered in Pittsburgh and serving Pennsylvania, West Virginia and Ohio. This collection of blogs further highlights the firms capabilities in several practice areas.

Tax Advantages of Intentionally Defective Grantor Trusts for Pass-Through Entities

Owners of businesses that are pass-through entities for income tax purposes (S Corporations, partnerships and most limited liability companies) are aware of the likelihood that their ownership will someday be passed to their descendants.  Any owner that investigates this learns that the transfer process can, and almost invariably will, involve unfavorable consequences.  If you are such an owner you should be aware of the tax and business succession advantages that are uniquely available under a so-called intentionally defective grantor trust (IDGT).  Here is how it works:

  1. You form a trust that benefits your children and/or grandchildren with a trusted third party as trustee (the IDGT).
  2. You transfer ownership interests to the IDGT by way of a combination of gifts and seller-financed sales but you retain control of the business.  The size of the transfers is managed so that no immediate tax consequences result to you or the IDGT.
  3. The business annually distributes a portion of its profits to each owner, including you and the IDGT.  The IDGT uses some of its distributions to make payments to you under the seller-financed sale.
  4. You continue to be subject to the income tax consequences on the portion of the business transferred to the IDGT for at least as long as you receive payments from the IDGT. 
  5. The value of the interests sold to the IDGT is frozen in your taxable estate, and it is routinely reduced as you pay the income tax consequences on those interests.  If this process continues for enough years the entire value of the transferred interests will be removed from your taxable estate no matter how valuable the business has become.
  6. The appreciation in the value of the interests transferred to the IDGT does not affect your taxable estate, and value of the interest owned by the IDGT appreciates quickly because it is free of income tax.  Eventually your children and/or grandchildren will benefit from the value of the IDGT.

If you are ready to find out if the IDGT technique is right for you, our team can advise you appropriately.  The sooner the better, because on January 1, 2026, many aspects of both federal income tax and transfer tax are scheduled to change in an unfavorable manner.  Please contact David G. Henry or Rebecca A. Winge for more information.


About Us

Trusted and Cost-Effective Business Law, Business Litigation and Estate Planning Attorneys and Counselors; Building Client Confidence™ with Businesses and Individuals Since 1975

Our firm offers individualized solutions and the highest quality, client-driven and cost effective legal services. Houston Harbaugh, P.C., is a well-known law firm in Pittsburgh, serving Pennsylvania, West Virginia and Ohio. Our diverse practice areas include Business Law, Business Litigation, Estate and Succession Planning, Intellectual Property Litigation and Prosecution, Employment and Labor, Employee Benefits, Oil and Gas, Landowner and Property Dispute Counseling and Litigation, Health Care, Environmental, Real Estate, Construction, Complex Tort and Catastrophic Injury Litigation, Insurance coverage and Bad Faith Law, Mediation, Arbitration and Special Master appointment work. As one of the 20 largest law firms in Pittsburgh, our lawyers serve clients on a regional and national basis.

We regularly represent regional, national and international insurance carriers in defense, insurance coverage, unfair trade practices and bad faith matters, and we issue opinions letters and coverage analyses for insurers. We defend designers, manufacturers and sellers in pharmaceutical, products and medical products liability matters and we litigate and try cases involving catastrophic injuries, industrial accidents, toxic torts, professional, engineering and architectural negligence, and agent and broker claims and lawsuits.

Why Houston Harbaugh, P.C.? The Answer Is Clear.

We are accomplished litigators with a strong track record of success in the courtroom and in jury trials. We design and manage business transactions, succession planning, banking and regulatory issues. Our firm has regularly been featured in the U.S. News “Best Lawyers”® rankings of Pittsburgh’s “Best Law Firms.” Our attorneys are also regularly nominated as “Best Lawyers” in this publication. In addition, many of our attorneys are consistently recognized in the annual national Super Lawyers peer review rankings, and our corporate practice has been selected as the winner of The Legal Intelligencer’s Best Law Firm Corporate Practices contest for the Midsize Firm category. Our property and landowner counseling and litigation practice in Oil and Gas and Real Estate is ranked at the top on a regional basis. We help clients to apply for, prosecute, audit, manage and protect intellectual property rights in patent, trademark, copyright and trade secrets. We are admitted to the USPTO and have experience in the TTAB. Some of our firm’s shareholders are Adjunct Professors of Law at the Duquesne University School of Law in litigation and intellectual property courses.

Helping You Achieve Your Goals For Over 40 Years

Since our inception as a health care practice in 1975, our attorneys have represented clients in state and federal courts in Pennsylvania, West Virginia, Ohio and throughout the nation. We have grown into a multi-disciplinary practice with the ability to handle complex business transactional and litigation matters. We counsel on estate and succession planning and on trust and guardianship matters. We have a strong employment and labor practice. We represent clients in trade secret counseling and federal Defend Trade Secret Act (DTSA) counseling and litigation. Our DTSALaw® practice group is well versed in this federal body of trade secret law. We counsel, draft, litigate and defend claims involving employment non-compete, restrictive covenants, non-disclosure agreements and breach of contract matters. We service clients in the collection of debts and in bankruptcy creditor matters. Houston Harbaugh litigates in Orphans and Probate courts for matters involving estates and trusts. We also provide mediation and arbitration services to parties involved in litigation and our lawyers are currently serving as court appointed special masters in the Federal Courts.

Contact us and Learn How We Can Help You and Your Business

For more information on how we can help you, call our Pittsburgh office at 412-281-5060. You can also reach us online.

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