Why a Grantor Trust is a Helpful Estate Planning Tool

February 13, 2022
Alec Borenstein, Esq.

We view the estate planning in New Jersey process as a formula with many values and variables. When you properly balance out the formula, everything will turn out precisely the way you want it. However, estate planning has one vital component known as a “grantor trust.” This legal term refers to a situation in which the creator of a living trust (who is also the grantor) controls all the assets maintained within it.


Our trust attorneys in new Jersey want to explain more about what a grantor trust is and how it can benefit you. Remember, creating a grantor trust can help bolster your estate plan when it comes to asset management strategies. Here is everything you need to know:


What Is a Grantor Trust?

In the simplest terms, a grantor trust is where the creator of a trust also maintains control over assets held. Many view it as a passive entity that the government doesn't consider taxable. That’s because you are the one who reports the income and claims any deductions for it on your personal tax returns. Furthermore, all grantor trusts are living trusts, but not all living trusts are grantor trusts.


Why Do You Need a Grantor Trust?

Grantor trusts can prove to be extremely beneficial to your estate plan because they allow you to devise a reliable strategy for managing your assets. For example, when you earn an income due to the assets contained within your grantor trust, it’s taxed against your personal income and not the trust. This ultimately allows you to have more control over your tax liability, as individual tax rates tend to be much less of a financial burden.


Grantor trusts also provide you, the trust creator, with plenty of flexibility. As Grantor you can usually swap assets into and out of the trust for tax purposes. You might also have other powers to add or limit classes of beneficiaries depending on the type of trust.


Creating a grantor trust will also simplify the process of transferring large amounts of wealth to surviving family members before the grantor passes away. However, once the grantor dies, the trust will automatically become irrevocable. A successor trustee will then step in to manage and distribute any assets maintained with the trust. However, you can always leave behind instructions and guidelines for the new trustee.



Related post: 5 Ways Your Estate Plan Can Benefit from a Charitable Remainder Trust



Is a Grantor Trust Right for Your Estate Plan?

Ultimately, you have the task of assessing your current estate plan before determining if you should create a grantor trust. It can help you preserve your wealth and maintain control of your assets while minimizing your tax burden. It can also protect you against creditors and lawsuits. You have a unique opportunity to exercise control over everything you own, which will greatly benefit you when it comes to long-term financial planning.


If you are still unsure about the benefits of creating a grantor trust, consider this: there is no one-size-fits-all option for your estate plan. It all comes down to your current financial situation and other circumstances surrounding your life. We advise that you give us a call today and speak with one of our estate planning experts to help figure out what’s best for you.


Our trust attorneys in New Jersey and New York serve a wide range of clients who want to provide financial protection for their families down the road. We understand the burden of planning for a future when you are no longer around, which is why we want to help simplify the process. Schedule an appointment with us today, and we can immediately begin devising an estate plan on your behalf.

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About us

Borenstein, McConnell & Calpin, P.C. is a Wills & Estate Planning law firm serving Central and Northern New Jersey, as well as New York City. We strive not only to give you a great client experience, but to become your trusted adviser for life. To reach Alec, please send an email to alec@bmcestateplanning.com.

NJ Offices:
155 Morris Avenue, Suite 201
Springfield, NJ 07081

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Lebanon, NJ 08833

NY Office:
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Brooklyn, NY 11219