Information About Grantor Trusts
Setting up a trust is an effective way to take control of your estate and govern what happens to your assets when you die. A grantor trust will let you make estate planning decisions and help your beneficiaries avoid probate court. The grantor trust is a separate legal entity that can be used to hold property and other assets for the future transfer to a beneficiary.
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Grantor Trust
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The grantor trust is a type of estate planning device that involves three parties. The grantor is the individual who sets up the trust and puts assets into it. The trustee is the individual who watches over the trust once the assets are in it. The beneficiary of the trust is the individual who receives the assets in the trust once the grantor passes away. This type of trust is generally considered to be one in which the grantor retains some level of control over the assets in the trust.
Revocable vs Irrevocable Trust
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Most grantor trusts are considered to be revocable trusts, which means the grantor of the trusts could change the terms of the agreement at any point while he is still alive. By comparison, an irrevocable trust is one in which the grantor cannot change any of the terms of the trust agreement once it is set up. The beneficiary of the trust is generally the only one who can change the terms of this kind of agreement.
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Benefits
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A primary benefit of setting up a grantor trust is so that beneficiaries can avoid probate court. Without a trust, the beneficiaries of an estate would have to go through probate before they could inherit any of the assets from it. This is a time-consuming process, and it can be costly if any of the estate is contested. This can also help keep the estate private instead of becoming a matter of public record as is the case when an estate goes through probate.
Tax Liability
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When a grantor puts assets into a grantor trust, these assets are then removed from his estate. Although the assets are technically removed from the estate, this does not remove the tax responsibilities that come with them. For example, if the grantor puts securities into the trust that generate income, the grantor will still be liable for any taxes that are incurred from the earnings. The grantor will have to count this as income and pay the appropriate amount of taxes on it.
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