IDGT Installment Sale 2026 Calculator
An IDGT installment sale 2026 calculator projects how much asset growth above the IRC §1274 AFR transfers estate-tax-free to an Intentionally Defective Grantor Trust, how much taxable interest the grantor will receive, and the total estate-freeze value over the note term per Rev. Rul. 85-13.
| Asset value sold to trust | — |
| Valuation discount applied | — |
| Note principal (after discount) | — |
| AFR ({afr_label}) | — |
| Annual interest to grantor (taxable) | — |
| Asset value at end of term | — |
| Note balance at end of term (interest-only) | — |
| Growth transferred estate-tax-free | — |
| Total estate-freeze impact | — |
An Intentionally Defective Grantor Trust (IDGT) is treated as a separate entity for estate-tax purposes but as the grantor for income-tax purposes. Selling an appreciating asset to an IDGT in exchange for an installment note pegged to the IRC §1274 AFR freezes the asset's value in the grantor's estate while transferring all future growth above AFR to the trust beneficiaries — tax-free. Last updated 2026.
Why the Sale Is Income-Tax-Free
Under Rev. Rul. 85-13, a sale between a grantor and a grantor trust is disregarded for federal income tax — no capital-gains recognition, no basis step-up to the trust, no interest income to the grantor on paper. The trust's basis carries over. This is the magic that distinguishes an IDGT installment sale from a GRAT: zero income tax friction during the entire note term.
Estate-Freeze Mechanics
The grantor's estate now holds only the installment note (frozen at face value plus accrued AFR interest), while all asset appreciation above AFR accrues outside the estate. If the asset returns 9% and AFR is 4.5%, the spread of 4.5% per year compounds inside the trust. Over a 9-year note, on a $10M sale, that spread alone can transfer $4-5M+ in estate-tax-free wealth.
Seed Gift and the 10% Rule
The IRS expects the trust to be economically capable of repaying the note, not merely a conduit. The widely-followed safe-harbor is a "seed gift" of roughly 10% of the note value (e.g., $1M seed for a $10M note). The seed comes from the grantor's lifetime gift exemption and gives the trust independent equity that justifies the loan as bona fide debt rather than a disguised gift.
Sources and References
This tool follows Rev. Rul. 85-13 (grantor-trust sale not recognized), IRC §1274 (Applicable Federal Rate), IRC §671-679 (grantor-trust rules), IRS monthly AFR releases, and standard 10% seed-gift safe harbor practice. Always confirm the current AFR and consult a qualified estate-planning attorney before executing.
Last updated May 2026. Sources cited in tool output.