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What is a grantor trust? My friend had an attorney set one up for him, but I did not understand. Info apprec.

Secaucus, NJ |

What is a grantor trust? My friend had an attorney set one up for him, but I did not understand. Info apprec.

Attorney Answers 5

  1. Best answer


    A grantor trust is any trust where the grantor is still considered to own the underlying trust assets for income tax purposes. Hence, if you set up a revokable trust, you would be responsible for paying taxes on any income generated by the trust. Your friend's attorney likely wanted to help him avoid transfer taxes by intentionally making an irrevocable trust into a grantor trust, which is called an IDGT Trust.

    Here a couple links for you to better explore these terms:

    I am only licensed to practice law in New York, so this is just general educational information. You will need to contact a local attorney to attain information that pertains to your specific circumstances. No attorney-client relationship exists between us.

  2. A grantor trust is a trust where the individual creating and placing assets into the trust maintains enough control/ownership over the trust and the assets in the trust.

    The differences typically relate to taxes. First, in a grantor trust the grantor (your friend) pays the taxes on the assets in the trust. Further, typically the transfer of assets into the trust is not considered a gift, and thus no gift tax return is needed on gifts over the statutory maximum.

    Matthew Johnson phone# 206.747.0313 is licensed in the State of Washington and performs bankruptcy, short sale negotiations, and estate planning in Whatcom, Skagit, Snohomish, King and Pierce counties. The response does not constitute specific legal advice, which would require a full inquiry by the attorney into the complete background of the facts and circumstances surrounding this matter; rather, it is intended to be general legal information based on the limited information provided by the inquirer; it This response also does not constitute the establishment of an attorney-client relationship, which can only be established after a conflict of interest evaluation is completed, your case is accepted, and a fee agreement is signed. Johnson Legal Group, PLLC

  3. Grantor trust is a tax term meaning a trust, which under Internal Revenue Code sections 671 to 678 is treated for tax purposes as if income and assets of the trust were grantor's rather than in trust. It can be useful in tax planning.

    Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (L.L.M.) in Taxation from N.Y.U. School of Law. Visit for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax and for timely updates. Information on both Avvo and does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.

  4. In NJ, probate of a will is simple and generally costs less than $200 in filing fees, therefore, we generally do not utilize them ass much as people in NY, FL, CA and elsewhere.

    The answers given by my colleagues are otherwise on point.

    There are some reasons to utilize a grantor trust, sometimes an irrevocable trust for the benefit of children, so you pay the tax in lieu of your children, and further reduce your estate, or a revocable trust, which avoids ancillary probate of real estate located in another state.

    A trust is often utilized for someone Mr. Friedman counsels who is or fearful of suffering from Alzheimer's disease.

    If you would like to discuss your estate planning needs, I am located in Livingston and I can be reached at 973-994-9080.

    The foregoing is not intended to be legal advice upon which you may rely as I have not been retained for this purpose.

  5. The prior answers are generally correct; however, it should be noted that "grantor trust" is an income tax term. The income of the trust is taxable to the grantor but the transfers made into the grantor trust may very well be completed gifts for gift tax purposes and the trust assets may be excluded from the grantor's estate. In fact, the term intentionally defective grantor trust wghich would be an irrevocable trust stems from the fact that the contributions to the trust result in completed gifts for gift tax purposes but are 'defective" for income tax purposes because the transfer is not "complete" and the trust is disregarded for income tax purposes

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