Grantor
Trust
A trust is a
device where a trustee holds assets for the benefit of a
beneficiary. There are all sorts of variations. A person who
creates the trust and transfers the assets to the trust is
said to be the grantor. The trust could require the income
to be paid to the grantor or it could require the income to
be paid to someone else. In estate planning the term
"grantor trust" means the income of the trust is taxable to
the grantor, regardless of who receives it under the terms
of the trust.
It is possible to
create a trust requiring all income to be paid to your
children and yet to be taxable on the income yourself. This
trust could (under a separate and different set of rules) be
a completed gift for gift and estate tax purposes. Thus the
trust assets, including any accumulated income, would not be
part of your taxable estate. Nor would any appreciation in
the value of the assets after the time of transfer be
subject to gift or estate tax.
Because of
grantor trust status you pay the income tax on the trust
income instead of the children. This is not treated as a
gift to the children, yet it results in a further transfer
of assets to them.
The grantor will
be treated as the owner of the income from the trust for
income tax purposes when he or she retains certain powers or
rights. If the grantor retains the right to the income of
the trust, the right to revoke or amend the trust, the right
to change beneficiaries or certain other powers, the grantor
will be deemed the owner of the trust for estate tax
purposes as well as income tax purposes.
The powers the
grantor can retain and still have the trust assets outside
his estate include power to withdraw the trust assets and
substitute other property of equal value.
||
Back
to List of Topics
||
||
See
My Probate Web Site
||
||
See
My Business Law Web Site
||
See
My Securities Arbitration Web
Site
||
|
