What Is A Grantor Trust? - UltraTrust.com - YouTube

Hello, this is Rocco Beatrice. I'm the Managing Director for Estate Street Partners.

And today I want to talk to you about what is exactly the Grantor-Type Trust?

A grantor trust is the grantor.

There are usually three parties to a trust agreement.

A trust is a contract, it's an agreement that's written by the grantor, the guy

that has the money, the guy who has the power to manage the money is called the

trustee for the benefit of you, your wife, your children - those are beneficiaries.

When you have a grantor type trust it really talks about the IRS exclusion of

different types of trust that it recognizes.

The IRS has different acceptable trusts

but the grantor type trust for purposes of income taxes it's income tax neutral.

It essentially all the income and expenses go in your income tax return.

For asset protection purposes however the trust can be revocable or irrevocable.

Revocable there's no asset protection, it was intended strictly or the elimination

of the probate process.

Probate process is when you have assets in each state and each state needs to be

probated so wherever the property is that's where your process has to go

through the courts. The courts essentially go according to

whatever your will wants. If you don't have a will then the state

tells who is going to get what.

The estate tax has more to do with at the date of death whether or not assets in

your name are going to have to be taxed and you get exclusion amounts, for 2013

it's $5 million and that's always going to be amended, it goes up and down like a yo-yo.

About 38 times the estate tax has been changed.

The grantor type trust therefore under the IRS code is an excluded asset category.

What it means is that the assets and the trust for income tax purposes, the income

and expenses associated with the trust is going to be taxed back to the grantor.

The grantor essentially has to pay the taxes on the deemed income.

Now what's important about this is that if you pay the taxes once it accumulates tax free.

So if throughout the years you have this much income and it belongs to the trust

it's tax exempt or tax free so when you're filing up the distribution you have to

make the computation of what is taxable and what is not going to be taxable.

But a grantor trust is a trust created by the grantor, the original owners of the asset.

He's the guy that's going to become permanently responsible for paying the

income taxes.

Two things here - taxes versus potential liability from a creditor.

They're different.

For purposes of income taxes it goes back to the original grantor but for purposes

of asset protection the assets belong to the trust, the trust is considered to be

a third party.

And the courts cannot give away money that doesn't belong to them.

The third party has nothing to do with the grantor for that purpose - difficult

to understand but just imagine going in front of a judge and he forces you to do

something you cannot do because you don't own the asset, the asset is owned by

a trust which is a third party.

So that's pretty much what a grantor type trust is.

Thank you. This is Rocco Beatrice.

For more information about this and other subject matters please go to

UltraTrust.com.