Definition Definition

What Is Grantor Trust? Understanding the Grantor Trust with Practical Example

What is Grantor Trust?

Grantor Trust is a form of trust that permits the grantor to have control over one or more of the trust's authority. As a result, the money in the trust is taxed to the grantor. It maintains ownership over the trust's earnings. Families typically utilise it to organise their estates.

Understanding Grantor Trust

Grantor trusts are created to serve as a tax hideaway for the rich and powerful people. Direct taxes follow the very same pattern as income taxes. As the trust's income grows, it is taxable at the income taxes.

Revocable grantor agreements can be amended and changed at any time if the grantor is capable of giving consent. They can identify or revise the recipients of the trust, handle the trust's securities, and oversee trust fund capital. This form of trust can sometimes be undone or revoked because grantors hold certain powers and any revenue is taxable to the grantors individually.

The Internal Revenue Service (IRS) considers a grantor trust to be an ignored activity for taxation purposes. The grantor's overall tax rate typically includes any tax payments or deductions generated by the trust. Rather than having its own unique Tax Identification Number (TIN), the IRS enables a grantor trust to include the grantor's Social Security Number (SSN).

Practical Example

Jennifer plans to give her money to her daughters, but she doesn't want them to be responsible for paying taxes or making trust choices, so she decides to keep the funds in a grantor trust. Despite the fact that the resources will ultimately be passed on to her daughters, Rachel will exercise the authority of the trust as long as she has the presence of mind.

In Sentences

  • Grantor trust is used to indicate a type of trust that allows an individual to be the legal owner of the properties that they put into the trust.


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