What is a Grantor Trust?

Grantor Trusts relate to the taxation of a trust's income and the protection of estate assets. Grantor Trusts basically notate who pays the tax on income generated by the trust and also to insulate the estate's assets away from the Grantor.

One of the main purposes is to help pay less in taxes. The trustee will have to pay the income taxes but will gain control over the trust property to protect, hold, and manage it.

It must be noted that this kind of trust must be created with a trust agreement. It is done by the Grantor of the Trust initiating a contract with the Trustee. The Grantor of the Trust is simply the person who owns the assets. Assets could include anything from stocks, to property, to anything with significant monetary value.

The Grantor of the Trust wishes to create a grantor trust to get the assets out of their name. Reasons for this include tax benefits, elimination of estate taxes, asset and wealth preservation, and the reduction of potential lawsuits against the estate.

There are two types of Grantor Trusts, a Revocable Trust and Irrevocable Trust. The main difference between the two is if the Grantor wishes to maintain control over their assets, it will remain a Revocable Trust. In a Revocable Trust, the assets will be protected from going through probate.

If you have any interest or questions regarding Grantor Trusts, please contact a professional to find out which option is the best fit for your situation.