Definition

Noun: A grantor trust is a specific type of trust arrangement in which the person who creates and funds the trust (the grantor) retains certain powers or interests over the trust's assets. For legal and tax purposes, the income generated by the trust is not attributed to the trust itself but is instead treated as belonging directly to the grantor.

Usage

This term is used primarily in legal, financial, and estate planning contexts to describe a trust structure with specific tax implications. - The primary purpose of a grantor trust is often to shift income to beneficiaries in a lower tax bracket, but the grantor remains responsible for paying the taxes on the trust's income. - It is a formal, technical term.

Examples

• The attorney recommended establishing a grantor trust as part of the estate plan to manage the tax liabilities during the asset transfer period.
• Because he retained the power to revoke it, the IRS classified the arrangement as a grantor trust.
• The income from the grantor trust is reported on the grantor's personal tax return.

Advanced Usage

• "Intentionally defective grantor trust (IDGT)": A common estate planning strategy where a trust is deliberately structured as a grantor trust for income tax purposes (so the grantor pays the tax) but is considered separate from the grantor's estate for estate tax purposes. This allows assets to grow for beneficiaries without being reduced by income taxes.
  • They used an intentionally defective grantor trust to freeze the value of the business for estate tax calculations.

Variants and Related Words

• Grantor (noun): The person who creates and transfers assets into a trust.
• Trust (noun): A fiduciary arrangement that allows a third party (trustee) to hold assets on behalf of beneficiaries.
• Irrevocable Trust (noun): A trust that generally cannot be modified or terminated by the grantor once it is established. A grantor trust can be either revocable or irrevocable, but its "grantor" status is determined by the powers retained, not its revocability.

Synonyms

• Clifford Trust (noun, historical): An older term for a long-term grantor trust (lasting over 10 years), named after a legal case. This term is less common in modern usage following tax law changes.
• Reversionary Trust (noun): A type of grantor trust where the assets are destined to return to the grantor after a period.

Related Phrases

• "To be treated as a grantor trust": A phrase describing the tax classification of a trust by authorities.
  • Due to the control provisions, the entire trust will be treated as a grantor trust.
• "Grantor trust rules": Refers to the specific sections of the Internal Revenue Code (Sections 671-679) that define the conditions under which a trust is considered a grantor trust.
  • The estate planner was careful to avoid triggering the grantor trust rules for that portion of the estate.

Noun

1. a trust established to shift the income to someone who is taxed at a lower rate than the grantor for a period of 10 years or more