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Student Question of the Week: Grantor Trusts – What are They Good For?

Student Question from: Harry F.
Course:  Estate Planning

Student Question:

Dan, given the information on this page, why do Grantor Trusts exist?  What purpose do they serve?

Grantor Trusts

Grantor Trust is a trust in which the grantor, due to retained control over the income and/or corpus of the trust, is treated as the owner of the property and its income for income tax purposes.

A Grantor Trust is generally not recognized as a separate taxable entity and all of the income and deductions are treated as belonging directly to the grantor. Unless optional filing methods are elected, the fiduciary income tax return (Form 1041) is filed for a Grantor Trust as an “information return.” Dollar amounts are not shown on the return itself, but are reported on attachments to the return.


Instructor Response:

Hi Harry!

This is an interesting question!  Grantor Trusts are typically put in place because the assets can instantly be used for the purposes indicated if the grantor becomes incapacitated or dies. Also, unlike a will, when you die, the assets don’t go through probate and are not open to public disclosure.  Hope that helps!