Which of the following is a disadvantage of an intentionally defective grantor trust (IDGT)?

An intentionally defective grantor trust (IDGT) is specifically designed to allow the grantor to retain certain powers over the trust, making it "defective" for income tax purposes, while also providing certain estate planning benefits. However, one of the disadvantages of an IDGT is indeed that the grantor cannot also be a beneficiary of the trust.

When the grantor retains the power to control or benefit from the trust, it can lead to negative tax consequences, particularly with regard to estate taxes. If the grantor were to benefit from the trust, the assets could be included in the grantor's estate, thereby negating some of the advantages of using the IDGT as an estate planning tool. Thus, to ensure that the trust serves its intended purpose of reducing estate taxes and providing a means to transfer wealth to heirs outside of the grantor's estate, the design of the IDGT stipulates that the grantor cannot be a beneficiary.

This restriction helps to keep the assets outside the estate of the grantor for estate tax purposes. The inability of the grantor to benefit ensures that the trust serves its intended function without inadvertently reintroducing estate tax liability.