What Is A Grantor Trust And What Are The Benefits?

To be a grantor trust, the trust must meet specific rules set out in the Internal Revenue Code. There are several but the one that is used most frequently is that the grantor retains the right to remove assets from the trust. Only one rule has to be met in order for the trust to be classified as a grantor trust. In a grantor trust, the grantor is deemed to personally retain possession of the assets for income tax purposes and estate tax purposes. One of the primary advantages of the grantor trust is that the income from the trust is taxed to the individual at an individual rate as opposed to being taxed by the trust itself, since those tax rates are generally much higher.

Can Grantor Trusts Offer Significant Possibilities For Estate And Gift Tax Savings In South Carolina?

A grantor trust can offer significant possibilities for estate and gift tax savings. This is because the grantor trust treats assets as belonging to the grantor for income tax purposes, so any income in the trust is paid at the individual tax rate instead of the trust tax rate, which is generally much higher.

What Are Examples Of Some Common Types Of Grantor Trusts?

The most common grantor trust in use is the family living trust. Most trusts are of this type, but another type is the Qualified Personal Residence trust.

What Happens To A Grantor Trust When The Grantor Dies?

When the grantor dies, the qualification as a grantor trust terminates, and all of the income generated during that final year is assigned to the grantor. Then the trust can be distributed as a non-grantor trust.

Can The Grantor Borrow From The Trust Without Paying Interest?

The grantor can borrow from the trust, allowing him to borrow at lower than going interest rates or even with no interest at all.

Can Trust Income Of A Grantor Trust Be Invested?

The income from a grantor trust can be left in the trust to continue accruing interest, or it can be invested in different vehicles or even a new investment that’s not been in the trust yet.

Can Beneficiaries Be Easily Altered, Added, Or Removed From A Grantor Trust?

The ease of adjusting various aspects of the trust depends on the type of grantor trust, whether it’s revocable or irrevocable. In an irrevocable grantor trust, the beneficiaries cannot be changed. However, if the grantor trust is revocable as most trusts are, the grantor can amend the trust to change beneficiaries or even eliminate them.

Can Investments And Assets Inside The Grantor Trust Be Modified?

Investments and assets within the grantor trust can be changed. One of the rules about a grantor trust that makes it a grantor trust is that the grantor has the right to remove or add assets. So, in this case, assets can be changed into a different form or even removed and used by the grantor.

Can An Irrevocable Trust Become A Grantor Trust?

An irrevocable trust can be a grantor trust. A list of rules in the internal revenue code defines what a grantor trust is for tax purposes. You only have to meet one of these rules to become a grantor trust, and there are several wherein an irrevocable grantor trust can be deemed a grantor trust.

What Are Some Of The Proposed Changes Under The Biden Administration That Could Impact Grantor Trust?

One proposed change under the Biden administration, not law yet, is that all assets in the grantor trust will be included in the grantor’s estate when they die. Another rule is that distributions from the trust will be classified as gifts from the grantor; therefore, gift tax would have to be paid. And if the grantor trust is switched from grantor to non-grantor, then all of the assets in the trusts would be deemed a gift, and the grantor would have to pay gift taxes on the value of the entire trust.

For more information on Grantor Trusts Laws In South Carolina, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (864) 271-7940 today.

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